Business Context and Reporting Period
This Form 8-K filing by Hertz Global Holdings, Inc. (Hertz) reports material definitive agreements entered into on September 18, 2009, and filed on September 24, 2009. The filing details a refinancing of the company's U.S. fleet debt program through its bankruptcy-remote special purpose entity, Hertz Vehicle Financing LLC (HVF).
Key Financial Metrics and Transaction Details
- New Facility: Established the Series 2009-1 Variable Funding Rental Car Asset Backed Notes with an aggregate principal amount of $2,138,072,750.
- Utilization: The facility is available on a revolving basis but was not funded on the closing date.
- Maturity: Expected final maturity is January 25, 2012; legal final maturity is January 25, 2013.
- Interest Rate: Variable rates based on commercial paper rates plus a borrowing spread. The spread is approximately 150 basis points lower than the terminated Series 2008-1 Notes.
- Rating: The Series 2009-1 Notes are currently rated "Aa1" by Moody's Investors Service.
- Collateral: Secured by the majority of the U.S. car rental fleet, manufacturer receivables, and cash collateral accounts.
Material Changes Versus Prior Period
The filing reports the termination and full repayment of three prior variable funding note facilities: Series 2005-3, Series 2005-4, and Series 2008-1. These terminated notes were replaced by the new Series 2009-1 facility. Additionally, HVF amended and restated numerous U.S. Fleet Debt Program Documents to allow for segregated collateral pools, modify conditions precedent for new issuances, and adjust concentration limits for specific vehicle manufacturers.
Outlook, Risks, and Covenants
- Covenants: HVF is subject to restrictive covenants regarding liens, indebtedness, mergers, asset dispositions, and dividends.
- Events of Default: Includes non-payment, covenant violations, failure to maintain enhancement levels, and insolvency. An event of default could trigger rapid amortization and liquidation of the U.S. car rental fleet.
- Rating Sensitivity: The borrowing spread is subject to increase if Moody's downgrades the notes below "Aa3" or if an amortization event occurs.
- Manufacturer Risk: Amendments provide mechanisms to handle "Manufacturer Events of Default," allowing financing to continue for vehicles from affected manufacturers if the default is cured.
Investor Verification Checklist
- Verify the actual drawdown amounts under the new $2.14 billion Series 2009-1 facility, as it was unfunded at closing.
- Monitor Moody's rating of the Series 2009-1 Notes to assess potential increases in borrowing spreads.
- Review the specific concentration limits amended for vehicle manufacturers to understand exposure to specific OEMs.
- Confirm the status of the terminated Series 2005-3, 2005-4, and 2008-1 notes to ensure full repayment was executed as stated.
- Assess the impact of the new restrictive covenants on Hertz's operational flexibility regarding asset sales and dividends.