Midrand Print Company Business Plan — Funding Requirement and Structure

The funding package, how each tranche is applied, and the debt structure behind the press purchases.

Section 21 of 28

Funding Requirement and Structure

Jump to section

20.1 Sources and uses at close

Figure 1. Sources and uses balance at close with a launch buffer, not to the rand

20.2 Total funding package

Instrument	Amount (R m)	Timing	Share of package
Equity — tranche A	15.5	At close	30.0%
Equity — tranche B	6.5	Month 15, milestone-contingent	12.6%
Asset finance — AF1	11.0	At close	21.3%
Asset finance — AF2	6.5	Month 24	12.6%
Asset finance — AF3	2.2	Month 36	4.3%
Term loan	2.5	At close	4.8%
Revolving credit facility	7.5	Committed at close	14.5%
Total committed funding	51.7		100.0%

Table 38: Total committed funding package

Equity of R22.0m represents 42.6% of the package. For a manufacturing start-up this is conservative, and deliberately so: at 30% equity the plan does not survive its own base case. The structure is driven by debt capacity during the ramp rather than by an optimal long-run capital structure, and Section 20.4 shows why.

20.3 Rationale for the instrument mix

Asset finance for plant. The presses are specific, resaleable and identifiable, which supports asset-backed lending at a finer margin than a general term facility. The 72-month tenor is matched to a seven-year asset life and the balloon reduces amortisation during the years when cash is scarcest.
Term debt for leasehold and pre-operating cost. Unsecured in substance and priced accordingly at prime plus 300 basis points, with an 18-month capital moratorium reflecting that these items generate no separable cash flow.
A revolver rather than more term debt for working capital. Working capital absorption is lumpy and reverses; funding it with amortising term debt would impose a repayment profile on a balance that fluctuates. The revolver is secured on debtors, which is the correct collateral for the exposure.
Milestone-contingent equity tranche B. Releasing R6.5m against twelve contracted programmes at month 15 aligns capital deployment with the single variable the return depends on. It reduces the investor’s exposure if the commercial thesis is not proving out, at the cost of introducing a funding cliff if the milestone is narrowly missed — a risk the board should manage by monitoring the count from month 10 rather than month 14.

20.4 Debt serviceability — the central financing constraint

Figure 2. Debt service is not covered from operations until FY2030

R ‘000 unless stated	FY2027	FY2028	FY2029	FY2030	FY2031
Cash available for debt service	(6,116)	2,623	5,432	9,556	12,308
Debt service (capital and interest)	2,161	3,589	5,362	6,278	5,818
Debt service cover ratio	n/m	0.73x	1.01x	1.52x	2.12x
Interest cover ratio	n/m	1.97x	2.67x	3.83x	7.38x
Net debt / EBITDA	n/m	2.96x	2.53x	1.56x	0.55x

Table 39: Debt serviceability metrics

FY2027 ratios are not meaningful: the company trades for nine months and EBITDA is negative.

Figure 3. Leverage peaks in FY2029 and the balance sheet repairs from FY2030

The position from FY2030 is comfortable. DSCR reaches 1.52x and then 2.12x; net debt falls to 0.55x EBITDA; interest cover exceeds 7.38x. The financing question is therefore not whether the business can carry this debt, at maturity it carries it easily, but whether the lender will extend the structure required to reach that point.

20.5 Liquidity headroom

Figure 4. The revolver absorbs the ramp — headroom is thinnest exactly when the plan is most fragile

Peak revolver utilisation of R6.8m occurs in month 37, leaving R0.7m of headroom against the R7.5m limit. Expressed differently, the base case consumes 90% of the facility at its tightest point. This is a thin margin, and it means that a single quarter of debtor slippage, or one delayed expansion milestone, would exhaust the facility. An investor or lender may reasonably conclude that the revolver should be sized at R9.0 million rather than R7.5 million; the plan does not assume that larger facility, and the base case works without it, but the additional R1.5 million would cost little and would remove the most probable cause of an unplanned funding conversation.