Hertz 2012 Annual Report Download - page 106

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
For subsequent events relating to our indebtedness, see Note 18 to the Notes to our consolidated
financial statements included in this Annual Report.
Registration Rights and Indentures for the Senior Notes
Hertz entered into exchange and registration rights agreements entered into in connection with (i) the
issuance of $250 million in aggregate principal amount of the 6.75% Senior Notes due 2019 in March
2012, and (ii) the release from escrow of the proceeds of $700 million aggregate principal amount of
5.875% Senior Notes due 2020 and $500 million aggregate principal amount of 6.250% Senior Notes
due 2022. Pursuant to the terms of these agreements, Hertz agreed to file a registration statement under
the Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes
or, in the alternative, the registered resale of such notes. Hertz’s failure to meet its obligations under
either exchange and registration rights agreement, including by failing to have the registration statement
become effective by the date that is 365 days after the respective date of the exchange and registration
rights agreement or failing to complete the exchange offer by the date that is 395 days after the date of
the exchange and registration rights agreement, will result in Hertz incurring special interest on such
notes at a per annum rate of 0.25% for the first 90 days of any period where a default has occurred and is
continuing, which rate will be increased by an additional 0.25% during each subsequent 90 day period,
up to a maximum of 0.50%. A registration statement on Form S-4 covering the exchange of such notes
was declared effective by the SEC on February 1, 2013 and the exchange offer is scheduled to be
completed on March 6, 2013, so we do not believe the special interest obligation is probable, and as
such, we have not recorded any amounts for special interest with respect to these notes.
Hertz’s obligations under the indentures for the Senior Notes are guaranteed by each of its direct and
indirect domestic subsidiaries that is a guarantor under the Senior Term Facility. The guarantees of all of
the subsidiary guarantors may be released to the extent such subsidiaries no longer guarantee our
Senior Credit Facilities in the United States.
We refer to Hertz and its subsidiaries as the Hertz credit group. The indentures for the Senior Notes
contain covenants that, among other things, limit or restrict the ability of the Hertz credit group to incur
additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain
restricted payments (including paying dividends, redeeming stock or making other distributions to
parent entities of Hertz and other persons outside of the Hertz credit group), make investments, create
liens, transfer or sell assets, merge or consolidate, and enter into certain transactions with Hertz’s
affiliates that are not members of the Hertz credit group.
Other Financing Risks
A significant number of cars that we purchase are subject to repurchase by car manufacturers under
contractual repurchase or guaranteed depreciation programs. Under these programs, car
manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate on the
cars during a specified time period, typically subject to certain car condition and mileage requirements.
We use book values derived from this specified price or guaranteed depreciation rate to calculate
financing capacity under certain asset-backed and asset-based financing arrangements.
In the event of a bankruptcy of a car manufacturer, our liquidity would be impacted by several factors
including reductions in fleet residual values and the risk that we would be unable to collect outstanding
receivables due to us from such bankrupt manufacturer. In addition, the program cars manufactured by
any such company would need to be removed from our financing facilities or re-designated as
non-program vehicles, which would require us to furnish additional credit enhancement associated with
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