LensCrafters 2015 Annual Report Download - page 191

Notes to the separate financial statements as of December 31, 2015 Page 11 of 77
collateral without lender consent or by more than the established limit of 20% of Group stockholders' equity. Asset
disposals by Group companies are similarly restricted to no more than 10% 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 established financial ratios. The main such 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/Finance Expense >5
Covenants Priority Debt/Stockholders' 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/ 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 period established by the different credit agreements.
The Group monitors the amount of the covenants at the end of every quarter and was in full compliance with them as at
December 31, 2015. The Company also forecasts trends in these covenants in order to monitor future compliance;
current forecasts show that the Group's ratios are below the limits that would trigger a possible breach of contract.
Disclosures relating to the fair value of derivative financial instruments
The Group uses valuation techniques based on observable market data (Mark to Model) to determine the fair value of
its financial instruments; such techniques therefore fall into Level 2 of the fair value hierarchy identified by IFRS 13.
IFRS 13 identifies a three-level hierarchy of valuation techniques as follows:
• Level 1: inputs are quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs are those, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);