Hertz 2014 Annual Report Download - page 41

Table of Contents
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backed or asset-based financing on favorable terms, on a timely basis, or at all, then our costs of financing could increase significantly and have a
material adverse effect on our liquidity, interest costs, financial condition, cash flows and results of operations.
Our asset-backed and asset-based financing capacity could be decreased, our financing costs and interest rates could be increased, or our future
access to the financial markets could be limited, as a result of risks and contingencies, many of which are beyond our control, including: (i) the
acceptance by credit markets of the structures and structural risks associated with our asset-backed and asset-based financing arrangements;
(ii) the credit ratings provided by credit rating agencies for our asset-backed indebtedness; (iii) third parties requiring changes in the terms and
structure of our asset-backed or asset-based financing arrangements, including increased credit enhancement or required cash collateral and/or
other liquid reserves; (iv) the insolvency or deterioration of the financial condition of one or more of our principal car manufacturers; or (v) changes
in laws or regulations, including judicial review of issues of first impression, that negatively impact any of our asset-backed or asset-based
financing arrangements.
Any reduction in the value of certain cars in our fleet could effectively increase our car fleet costs, adversely impact our profitability and potentially
lead to decreased borrowing base availability in our asset-backed and certain asset-based vehicle financing facilities due to the credit
enhancement requirements for such facilities, which could increase 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 could have a material adverse effect on our
financial position, liquidity, cash flows and results of operations.
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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.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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