Vela Footwear — Debt Service, Covenants & Bankability

The debt service, covenants and bankability — the debt-service cover ratios from 0.12× in Year 1 to 3.38× in Year 5, the two-year capital grace period, the covenant package and the lender protections.

Section 15 · Business Plan

Debt Service, Covenants & Bankability

This section addresses the question senior lenders ask first: can the
business service its debt across the plan, including through the ramp?
The answer is structured rather than asserted. A two-year capital grace
period defers principal until the business is cash-generative, after
which the debt-service coverage ratio clears a 1.30x covenant from Year
3 and strengthens markedly thereafter.

Debt service schedule

R’000	Year 1	Year 2	Year 3	Year 4	Year 5
Senior debt (closing)	80,000	80,000	66,667	53,333	40,000
IDC facility (closing)	50,000	50,000	43,750	37,500	31,250
Revolving facility (closing)	0	15,795	38,356	51,091	45,405
Total debt (closing)	130,000	145,795	148,773	141,924	116,655
Term interest	13,650	13,650	13,650	11,552	9,454
Principal repayment	—	—	19,583	19,583	19,583
Total interest (incl. RCF)	13,650	13,650	15,624	16,347	15,841

Coverage and leverage ratios

Metric	Year 1	Year 2	Year 3	Year 4	Year 5	Covenant
DSCR (x)	0.12	1.59	1.52	2.34	3.38	≥ 1.30x (from Y3)
Net debt (R’000)	115,446	132,795	135,773	128,924	103,655	—
Net debt / EBITDA (x)	68.17	5.06	2.40	1.35	0.76	monitored
Interest cover (x)	-1.08	0.71	2.57	4.85	7.52	≥ 2.0x (from Y3)

Figure 13.

Figure 13. Debt-service coverage ratio versus the 1.30x covenant threshold.

Figure 14.

Figure 14. Net debt / EBITDA de-leveraging trajectory, Years 1–5.

How the structure achieves bankability

Grace through the ramp. No principal is due in
Years 1–2, so the thin early-year cash flow services interest only.
Principal amortisation of R19.6 million a year begins in Year 3, once
EBITDA exceeds R56 million.
Covenant headroom from Year 3. DSCR is 1.52x in
Year 3, rising to 2.34x and 3.38x in Years 4 and 5 — comfortably above a
1.30x covenant tested from the first year of amortisation.
Rapid de-leveraging. Net debt / EBITDA falls
from an immaterially high ramp-year figure to 1.35x by Year 4 and 0.76x
by Year 5, a conservative investment-grade leverage profile.
Reserve protection. The R9 million DSRA and the
undrawn headroom on the revolving facility provide additional protection
against timing mismatches.

ANALYST CALLOUT — Year-1 DSCR of 0.12x is covered only by
the grace period

In Year 1, the business does not generate enough cash to cover even
interest from operations — DSCR is 0.12x and interest cover is negative.
This is acceptable only because principal is in grace and interest is
funded from the capital structure (equity, grant and facility headroom),
not from operations. Lenders should size the grace period, DSRA and
revolving facility against a downside ramp, and may wish to test a
longer grace period or a Year-3 cash sweep. The plan clears its
covenants from Year 3 in the base case, but the first two years are
funded, not earned.

Confidential — this business plan is provided to prospective investors and lenders for evaluation purposes only and may not be reproduced or distributed without the written consent of Vela Footwear Manufacturing (Pty) Ltd.