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Hertz Global Holdings Inc. Reports Operating Results (10-Q)

August 07, 2009 | About:
10qk

Hertz Global Holdings Inc. (HTZ) filed Quarterly Report for the period ended 2009-06-30.

HERTZ GLOBAL HOLDING is the worlds largest general use car rental brand operating from approximately 8100 locations in 147 countries worldwide. Hertz is the number one airport car rental brand in the U.S. and at 69 major airports in Europe operating both corporate and licensee locations in cities and airports in North America Hertz Global Holdings Inc. has a market cap of $4.12 billion; its shares were traded at around $10.93 with and P/S ratio of 0.4.

Highlight of Business Operations:

In addition, events negatively affecting the car manufacturers, including a bankruptcy, could affect how much we may borrow under our asset-backed financing facilities. For example, under the current terms of our asset-backed financing facilities, upon the filing of bankruptcy by Old General Motors in June 2009, we have agreed to not access the $825.0 million of availability under our Series 2008-1 Notes until either; (1) the manufacturer event of default would need to be cured or the bankrupt manufacturer would need to emerge from bankruptcy and (a) the necessary administrative actions taken to include it as an "eligible manufacturer" and an "eligible program manufacturer" under our ABS credit facilities or (b) we amend these definitions in the ABS Base Indenture, (2) we renegotiate the agreements with MBIA and Ambac, now that New General Motors has emerged from bankruptcy, (3) we amend the Series 2008-1 Notes which may require the consent of the holders of notes of other series, or (4) certain other conditions of the agreements with Ambac and MBIA are satisfied. As of the date of the filing of this Report none of the above conditions have been fully met and we therefore have agreed to not access the $825.0 million of availability under our Series 2008-1 Notes. We would have a similar impact on our access to the $825.0 million of availability, if in the future other car manufacturers, including New General Motors, were to file for bankruptcy protection.

In May and June of 2009, Hertz Holdings issued an aggregate of $474.8 million in principal amount of convertible notes in a registered public offering. As of June 30, 2009, we had an aggregate principal amount of debt outstanding of $9,962.8 million and a debt to equity ratio, calculated using the total amount of our outstanding debt net of unamortized discounts of 5.5 to 1.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the instruments governing our indebtedness do not prohibit us or fully prohibit our subsidiaries from doing so. As of June 30, 2009, our Senior Credit Facilities provided us commitments for additional aggregate borrowings (subject to borrowing base limitations) of approximately $1,767.7 million, and permitted additional borrowings beyond those commitments under certain circumstances. For a detailed description of the amounts Hertz has available under its debt facilities, see "Management\'s Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesCredit Facilities," included in this Report. As of June 30, 2009, our U.S. Fleet Debt Facilities, our Fleet Financing Facility, our International Fleet Debt facilities, our International ABS Fleet Financing Facility and our other fleet debt facilities (related to Brazil, Canada, Belgium and the United Kingdom) provided us commitments for additional aggregate borrowings of approximately $1,219.8 million, $130.5 million, the foreign currency equivalent of $793.7 million, $481.7 million and $168.0 million, respectively, subject to borrowing base limitations. In May and June of 2009, Hertz Holdings issued an aggregate of $474.8 million in principal amount of convertible notes in a registered public offering. If new debt is added to our current debt levels, the related risks that we now face would increase. In addition, the instruments governing our indebtedness do not prevent us or our subsidiaries from incurring obligations that do not constitute indebtedness. On June 30, 2006, Hertz Holdings entered into a $1.0 billion loan facility in order to finance the payment of a special cash dividend of $4.32 per share to its stockholders on June 30, 2006. Although this facility was repaid in full with the proceeds from our initial public offering, we cannot assure you that Hertz Holdings will not enter into similar transactions in the future.

We rely significantly on asset-backed financing to purchase cars for our domestic and international car rental fleets. In connection with the Acquisition, a bankruptcy-remote special purpose entity wholly-owned by us issued approximately $4,300.0 million of new debt (plus an additional $1,500.0 million in the form of variable funding notes issued but not funded at the closing of the Acquisition) backed by our U.S. car rental fleet under the ABS Program. In addition, we issued $600.0 million of medium term notes backed by our U.S. car rental fleet prior to the Acquisition, or the "Pre-Acquisition ABS Notes," which remained outstanding following the Acquisition. As part of the Acquisition, various of our non-U.S. subsidiaries and certain special purpose entities issued approximately $1,781.0 million of debt under the International Fleet Debt, which are secured by rental vehicles and related assets of certain of our subsidiaries (all of which are organized outside the United States) or by rental equipment and related assets of certain of our subsidiaries organized outside North America, as well as (subject to certain limited exceptions) substantially all our other assets outside North America. The asset- backed debt issued in connection with the Acquisition has expected final payment dates ranging through 2010 and the Pre-Acquisition ABS Notes have expected final payment dates ranging through 2009. Based upon these repayment dates, this debt will need to be refinanced within the next one and a half years. Recent turmoil in the credit markets has reduced the availability of debt financing and asset-backed securities have become the focus of increased investor and regulatory scrutiny.

On July 24, 2008, we entered into the International ABS Fleet Financing Facility, which has an expected maturity date of December 2010 and allows for maximum commitments under (i) the Euro-denominated portion of €562.0 million (the equivalent of $790.5 million as of June 30, 2009) and (ii) the Australian dollar-denominated portion of A$269.0 million (the equivalent of $218.1 million as of June 30, 2009). Additionally, in September 2008, we issued but did not fund $825.0 million in the form of variable funding notes, or the "Series 2008-1 Notes." The Series 2008-1 Notes are not subject to any financial guarantee.

the acceptance by credit markets of the structures and structural risks associated with our asset-backed financing programs, particularly in light of recent developments in the markets for mortgage-backed securities; credit rating agencies for our asset-backed indebtedness, MBIA and Ambac, or other third parties requiring changes in the terms and structure of our asset-backed financing, including increased credit enhancement (i) in connection with the incurrence of additional or refinancing of existing asset-backed debt, (ii) upon the occurrence of external events, such as changes in general economic and market conditions or further deterioration in the credit ratings of our principal car manufacturers, or (iii) or otherwise; the terms, availability and credit market acceptance of third party credit enhancement at the time of the incurrence of additional or refinancing of existing asset-backed debt or the amount of cash collateral required in addition to or instead of such guaranties; the insolvency of one or more of the third-party credit enhancers that insure our asset-backed debt, or downgrading of their credit ratings; the insolvency or further deterioration of the financial condition of one or more of our principal car manufacturers; or changes in law that negatively impact our asset-backed financing structure. The occurrence of certain of the events listed above could result, among other things, in the occurrence of an amortization event pursuant to which the proceeds of sales of cars that collateralize the affected facility or series of asset-backed notes 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. The continuation of an amortization event for 30 days, as well as, certain other events, including defaults by Hertz and its affiliates in the performance of covenants set forth in the agreements governing our U.S. Fleet Debt, could result in the occurrence of a liquidation event pursuant to which the trustee or holders of asset-backed notes of the affected series would be permitted to require the sale of the assets collateralizing that series. If such an event were to occur, we would not be able to effect short-term borrowings under the variable funding notes issued at the closing of the Acquisition, although we might, depending on the circumstances be able to borrow on a short-term basis under the Series 2008-1 Notes, subject to borrowing base availability. Currently, because Old General Motors filed for bankruptcy we have agreed to not access the $825.0 million of availability under our Series 2008-1 Notes until either; (1) the manufacturer event of default would need to be cured or the bankrupt manufacturer would need to emerge from bankruptcy and (a) the necessary administrative actions taken to include it as an "eligible manufacturer" and an "eligible program manufacturer" under our ABS credit facilities or (b) we amend these definitions in the ABS Base Indenture, (2) we renegotiate the agreements with MBIA and Ambac, now that New General Motors has emerged from bankruptcy, (3) we amend the Series 2008-1 Notes which may require the consent of the holders of notes of other series, or (4) certain other conditions of the agreements with Ambac and MBIA are satisfied. In the event of a manufacturer event of default or bankruptcy of Ford or New General Motors, we would again lose access to the $825.0 million of availability under our Series 2008-1 Notes. See "Risks Related to Our BusinessWe could be

Read the The complete ReportHTZ is in the portfolios of Bruce Berkowitz of Fairholme Capital Management.

Rating: 2.2/5 (6 votes)

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