Khanya Cold Chain Business Plan — Break-Even and Debt Service

Break-even occupancy of 63.9% against a Year 3 plan of 79%, and debt service cover across the senior and DFI tranches.

Break-Even and Debt Service

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10.1 Break-even
10.2 Debt service
10.3 What the covenant conversation should look like

10.1 Break-even

Figure 17. Break-even in pallets occupied.

	Year 1	Year 2	Year 3	Year 4	Year 5
Fixed costs	22 836 500	29 063 338	34 654 658	39 651 102	44 285 150
Distribution contribution	1 860 149	5 055 439	9 058 959	12 307 638	14 408 950
EBITDA break-even occupancy	43.1%	45.2%	45.3%	45.3%	46.4%
Break-even including debt service	56.0%	65.0%	63.9%	62.8%	62.7%
Pallets required	2 520	2 925	2 876	2 826	2 822
Planned occupancy	46.0%	68.0%	79.0%	85.0%	88.0%
Headroom, percentage points	-10.0	3.0	15.1	22.2	25.3

Break-even occupancy including debt service sits between 56 and 65 per cent across the projection. Expressed in the terms that matter operationally, the store must hold roughly 2 876 pallets occupied, every week, before it earns anything for its owners. In Year 3 the plan holds 3 555, a headroom of fifteen points. In Year 1 the headroom is negative ten points.

10.2 Debt service

Figure 18. Debt service cover. The covenant is only met from Year 3.

R	Year 1	Year 2	Year 3	Year 4	Year 5
Interest	6 310 000	6 064 539	5 484 585	4 828 473	4 086 120
Capital repaid	— (moratorium)	4 457 568	5 037 522	5 693 634	6 435 987
Total debt service	6 310 000	10 522 107	10 522 107	10 522 107	10 522 107
Senior facility balance	34 000 000	30 812 171	27 184 317	23 055 702	18 357 204
DFI tranche balance	18 000 000	16 730 261	15 320 592	13 755 573	12 018 084
Total debt outstanding	52 000 000	47 542 432	42 504 910	36 811 276	30 375 289
EBITDA	1 418 599	12 106 622	19 056 921	23 914 935	26 819 815
Debt service cover	0.22x	1.15x	1.81x	2.27x	2.55x

The occupancy required to meet a 1.30 times cover ratio in Year 3 is 68.9 per cent, against a plan of 79 per cent. That is the number a lender should test, and it is a more useful covenant than a revenue target because it is measured weekly and cannot be flattered by one-off handling volume.

10.3 What the covenant conversation should look like

Option	What it does	Cost to the borrower	Why a lender might accept it
Covenant commences Year 3	Removes the test in the two years the ramp cannot pass it	None directly	The lender is underwriting the ramp anyway; testing it in Year 1 guarantees a technical breach that helps nobody
Interest reserve account	Pre-funds twelve to eighteen months of interest from the drawdown	Increases the funding requirement by roughly R7m to R10m	Converts the ramp risk into a funded reserve the lender controls
Extended capital moratorium to 24 months	Defers the first capital repayment to Year 3	Higher total interest across the facility	Cover rises to 1.92x in Year 2 on interest alone; the facility amortises over a shorter remaining life
Cash sweep above a threshold	Accelerates repayment when occupancy outperforms	Reduces distributions in good years	Aligns the amortisation with the actual ramp rather than a fixed schedule
Occupancy covenant instead of DSCR	Tests the driver rather than the outcome	None; it is a more demanding test in practice	Occupancy is measured weekly and cannot be flattered by one-off handling volume

The last option deserves particular attention. A debt service cover covenant tested annually tells a lender about a year that has already happened; an occupancy covenant tested monthly tells them about a year that is still recoverable. The occupancy required for a 1.30 times cover in Year 3 is 68.9 per cent, and a covenant set at, say, 62 per cent from month eighteen would give the lender an early warning roughly four quarters before the financial covenant would have failed.

Raise the covenant question in the term sheet, not at the first test date

This plan does not clear a standard 1.30 times debt service covenant in Years 1 or 2, and no amount of presentation changes that. A borrower who submits it with a covenant tested from Year 1 and hopes the point is not noticed has created a technical default that will arrive at the worst possible moment, with a half-full building, no cash headroom and a lender who now has every reason to reprice. A borrower who raises it in negotiation is asking for something the lender was going to have to concede anyway, at a point when the relationship is new and the alternative structures in the table above are all available. The cost of the conversation is a slightly harder negotiation; the cost of avoiding it is the business.

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