LensCrafters 2013 Annual Report Download - page 179

Footnotes to the statutory financial statements as of December 31, 2013 Page 12 of 71
Default and negative pledge risk
The Company's credit agreements (Mediobanca 2014, Intesa 2013, Club Deal 2013, tranche E of Oakley loan, ING
Private Placement 2020) require compliance with negative pledges and financial covenants; on the contrary, the
bond (maturing on November 15, 2015) does not contain any financial covenants.
The pledges and covenants contained in the credit agreements aim to restrict the Company's ability to use its assets
as collateral without lender consent or by more than the established limit of 30% of Group stockholders' equity.
Asset disposals by Group companies are similarly restricted to no more than 30% of consolidated assets.
Failure to comply with the above covenants, followed by failure to comply within the established grace period, could
constitute a breach of credit agreement contractual obligations.
The financial covenants require the Company to comply with the established financial ratios. The main ratios are the
Group's ratio of net debt to consolidated EBITDA and the ratio of consolidated EBITDA to finance expense.
The limits for these main covenants are as follows:
Net Financial Position/ Proforma Ebitda < 3.5
Ebitda/Proforma Finance Expense >5
Covenants Priority Debt/Shareholders’ Equity <20
An explanation of the meaning of the above covenants is provided below:
• "Net Financial Position / Proforma Ebitda": this is an indicator of the prospective sustainability of debt
repayments; the lower the absolute value, the greater the company's ability to repay the debt (as indicated by the
Net Financial Position) through the generation of gross cash flows from ordinary operations (as indicated by the
amount of EBITDA);
• "Ebitda / Proforma Finance Expense": this is an indicator of financial stress; the higher the value, the greater
the company's ability to produce adequate resources to cover finance expense;
• "Covenants Priority Debt / Stockholders’ Equity": this is an indicator of the ability to achieve financial
equilibrium between own and third-party sources of funding; the lower the ratio, the greater the company's
ability to fund itself.
In the event the Group fails to comply with the above ratios, it could be required to make immediate repayment of
the outstanding debt if it does not return within these limits in the agreed period of 15 business days commencing
from the date of reporting such non-compliance.
The Group monitors the amount of the covenants at the end of every quarter and was in full compliance with them at
December 31, 2013. The Company also forecasts trends in these covenants in order to monitor compliance; current
forecasts show that the Group's ratios are below the limits that would trigger a possible breach of contract.