Dollar Rent A Car 2007 Annual Report Download - page 28

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medium term note market. We do not expect to need to access this market in 2008, but continued
disruption in the asset backed medium term note market could materially impact our ability to finance and
increase the cost of financing vehicles in the future. A bankruptcy filing by one or more of the Monolines
could result in accelerating the payoff schedule of a portion or all of our asset backed medium term notes.
We also depend on the bank market to support our asset backed commercial paper vehicle financing
programs and other bank vehicle financing facilities. We also utilize a vehicle line from Chrysler’s finance
affiliate. If we are unable to renew or maintain these commitments, we may not have sufficient financing
for vehicles in 2008.
Maintenance of Financial Covenants
Our agreements with the Monolines have a minimum net worth covenant and interest coverage covenant.
We are in compliance with all covenants at December 31, 2007. We will amend the minimum net worth
covenant in these agreements to exclude the impact of any potential write-down of our goodwill; or, if not
amended, a violation of this covenant can be avoided by providing additional credit enhancement. See
the risk factor, “Potential for Goodwill Impairment” in this risk factor section.
Our agreements for our asset backed commercial paper programs also have a minimum net worth
covenant and interest coverage covenant. We are in compliance with these covenants at December 31,
2007. We expect to modify the minimum net worth covenant in these agreements to exclude the impact
of any potential goodwill write-down.
Our bank revolving credit agreement, term debt and bank and vehicle manufacturer lines of credit require
that our corporate debt to corporate EBITDA ratio is maintained within certain limits as defined in the
credit agreements. We are in compliance with this covenant at December 31, 2007. Based on our
projected levels of corporate debt and corporate EBITDA in 2008, we expect to remain within the required
ratios. Because of the volatility in the economy and in our industry generally, there is a risk that our
corporate EBITDA could fall below the level required to maintain compliance with this covenant.
Interest Rates
We incur a large amount of debt to purchase vehicles. While the majority of this debt bears interest at
fixed rates due to our interest rate swap agreements, a portion of this debt bears interest at short-term
floating rates. Therefore, we are exposed to increases in interest rates. The amount of our financing
costs affects the amount we must charge our customers to be profitable. Increased interest rates could
have a material adverse impact on our results of operations if we are unable to pass increased financing
costs through to our customers or if we lose customers to competitors due to increased rental rates
resulting from an increase in our financing costs.
Outsourcing Arrangements
We have an agreement with EDS to handle the majority of our IT services. If EDS fails to meet our
required IT needs due to a lack of technical ability or financial condition or otherwise, we may suffer a loss
of business functionality and productivity, which would adversely affect our results. Additionally, if there is
a disruption in our relationship with EDS, we may not be able to secure another IT supplier to adequately
meet our IT needs on acceptable terms, which could result in performance issues and a significant
increase in costs.
We have an agreement with PRC to handle a portion of the calls to reserve a car for rental on a future
date and to answer questions or handle issues while the renter has our car. If PRC fails to meet our
required reservation needs due to lack of qualified personnel or financial condition or otherwise, we may
suffer a loss of business which would adversely affect our results. Additionally, if there is a disruption in
our relationship with PRC, we may not be able to secure another supplier to adequately meet our
reservation needs on acceptable terms, which could result in loss of customers and a decrease in
revenues.
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