Hertz 2013 Annual Report Download - page 32

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if market values for vehicles decrease below net book values for those vehicles. In addition, if disposal of vehicles in the used vehicle
marketplace were to become severely limited at a time when required collateral levels were rising and as a result we failed to meet the
minimum required collateral levels, the principal under our asset-backed and certain asset-based financing arrangements may be required to
be repaid sooner than anticipated with vehicle disposition proceeds and lease payments we make to our special purpose financing
subsidiaries. If that were to occur, the holders of our asset-backed and certain asset-based debt may have the ability to exercise their right to
direct the trustee or other secured party to foreclose on and sell vehicles to generate proceeds sufficient to repay such debt.
The occurrence of certain events, including those described in the paragraph above, could result in the occurrence of an amortization event
pursuant to which the proceeds of sales of cars that collateralize the affected asset-backed financing arrangement would be required to be
applied to the payment of principal and interest on the affected facility or series, rather than being reinvested in our car rental fleet. In the case
of our asset-backed financing arrangements, certain other events, including defaults by us and our affiliates in the performance of covenants
set forth in the agreements governing certain fleet debt, could result in the occurrence of a liquidation event with the passing of time or
immediately pursuant to which the trustee or holders of the affected asset-backed financing arrangement would be permitted to require the
sale of the assets collateralizing that series. Any of these consequences could affect our liquidity and our ability to maintain sufficient fleet
levels to meet customer demands and could trigger cross-defaults under certain of our other financing arrangements.
Any reduction in the value of the equipment rental fleet of HERC (which could occur due to a reduction in the size of the fleet or the value of
the assets within the fleet) could not only effectively increase our equipment rental fleet costs and adversely impact our profitability, but would
result in decreased borrowing base availability under certain of our asset-based financing arrangements, which would have a material
adverse effect on our financial position, liquidity, cash flows and results of operations.
Substantially all of our consolidated assets secure certain of our outstanding indebtedness, which could materially adversely
affect our debt and equity holders and our business.
Substantially all of our consolidated assets, including our car and equipment rental fleets and Donlen's lease portfolio, are subject to security
interests or are otherwise encumbered for the lenders under our asset-backed and asset-based financing arrangements. As a result, the
lenders under those facilities would have a prior claim on such assets in the event of our bankruptcy, insolvency, liquidation or
reorganization, and we may not have sufficient funds to pay in full, or at all, all of our creditors or make any amount available to holders of
our equity. The same is true with respect to structurally senior obligations: in general, all liabilities and other obligations of a subsidiary must
be satisfied before the assets of such subsidiary can be made available to the creditors (or equity holders) of the parent entity.
Because substantially all of our assets are encumbered under financing arrangements, our ability to incur additional secured indebtedness or
to sell or dispose of assets to raise capital may be impaired, which could have a material adverse effect on our financial flexibility and force us
to attempt to incur additional unsecured indebtedness, which may not be available to us.
Restrictive covenants in certain of the agreements and instruments governing our indebtedness may materially adversely
affect our financial flexibility or may have other material adverse effects on our business, financial condition, cash flows and
results of operations.
Certain of our credit facilities and other asset-based and asset-backed financing arrangements contain covenants that, among other things,
restrict Hertz and its subsidiaries' ability to: (i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee obligations; (iv) prepay
other indebtedness or amend other financing arrangements; (v) pay dividends; (vi) create liens on assets; (vii) sell assets; (viii) make
investments, loans, advances or capital expenditures; (ix) make acquisitions; (x) engage in mergers or consolidations; (xi) change the
business conducted by us; and (xii) engage in certain transactions with affiliates.
Our Senior ABL Facility (as defined below in Note 5 to the Notes to our audited annual consolidated financial statements included in this
Annual Report under the caption “Item 8—Financial Statements and Supplementary Data”) contains a financial covenant that obligates us to
maintain a specified fixed charge coverage ratio if we fail to maintain a specified minimum level of liquidity. Our ability to comply with this
covenant will depend on our ongoing financial and operating performance, which in turn are subject to, among other things, the risks
identified in “—Risks Related to Our Business.”
The agreements governing our financing arrangements contain numerous covenants. The breach of any of these covenants or restrictions
could result in a default under the relevant agreement, which could, in turn, cause cross- defaults under our other financing arrangements. In
such event, we may be unable to borrow under the Senior ABL Facility and certain of our other financing arrangements and may not be able
to repay the amounts due under such
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Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
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