Hertz 2015 Annual Report Download - page 40

Table of Contents
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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.
                

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 in Note 6, "Debt," to the Notes to our 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.”
Additionally, the documentation of various of our (and/or our special purpose subsidiaries') financing facilities require us to file certain quarterly and
annual reports and certain of our subsidiaries to file statutory financial statements within certain time periods.
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 arrangements, which could have a material adverse effect on our business, financial condition, cash flows and results of
operations.
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