Rekah Follow-up: How Much Financial Flexibility Is Left After Debt, Leases, and Earnouts
Rekah’s covenants are still comfortably above their floors, but real financing room is tighter than the banking snapshot alone suggests: NIS 12.9 million of operating cash flow was almost entirely absorbed by leases, contingent consideration, and base capital spending, while all new long-term debt raised in 2025 carried prime-based pricing. This follow-up separates covenant compliance from actual capital-structure freedom.
The main article argued that Rekah exited 2025 without a covenant event, but with weaker cash generation, heavier working capital, and greater dependence on bank funding. This follow-up isolates the capital-structure layer: how much flexibility is really left after debt, leases, and contingent consideration.
Three points frame the issue immediately:
- The covenant pack is not flashing distress. Tangible equity stands at NIS 80.8 million, the current ratio is 1.53, and the equity-to-assets tests range from 19.1% to 22.4% against 15% floors.
- But the new debt is more rate-sensitive. All NIS 22 million of new long-term debt raised in 2025 carried prime-based pricing, and the floating-rate share inside the loan book disclosed in Note 16 rose to about 48.8% from 31.3% a year earlier.
- The real issue is what is left after cash uses. Operating cash flow fell to NIS 12.9 million, while total lease-related cash outflow was NIS 9.6 million and contingent-consideration payments were NIS 2.2 million.
Covenants Buy Time, Not Freedom
The year-end 2025 banking table still looks reasonably comfortable. Tangible equity is NIS 20.8 million above the NIS 60 million floor at banks A and B. Tangible equity to financial debt stands at 39% against a 25% minimum. The current ratio is 1.53 versus a floor of 1. Equity-to-assets tests range from 22.4% to 19.1% against 15% thresholds. This is not the picture of a company sitting one step away from breach.
| Covenant | 31 Dec 2025 result | Floor | Headroom |
|---|---|---|---|
| Tangible equity, banks A and B | NIS 80.8m | NIS 60.0m | NIS 20.8m |
| Tangible equity / financial debt, bank A | 39.0% | 25.0% | 14.0 pts |
| Current ratio, banks A and B | 1.53x | 1.00x | 0.53x |
| Tangible equity / tangible assets, banks A and B | 22.4% | 15.0% | 7.4 pts |
| Tangible equity / consolidated assets, bank C | 19.1% | 15.0% | 4.1 pts |
The analytical takeaway is that the banks are still giving Rekah time. But that time is getting more expensive. Note 16 shows that within the loan portfolio disclosed there, floating-rate debt rose to NIS 41.2 million from NIS 24.7 million a year earlier, while fixed-rate debt fell to NIS 43.2 million from NIS 54.1 million. That is not cosmetic. It is a change in risk mix.
The reason is explicit in the note. In March 2025 the company took an NIS 8 million loan at prime minus 0.1%. In April it took an NIS 4 million loan at prime. In August it took another NIS 10 million loan, again at prime. In other words, all new long-term borrowing in 2025 came in on a floating basis.
And this is not only about interest cost. It is also about freedom of action. The same note says group companies must obtain prior written lender consent for extraordinary transactions and for a change of control in Rekah or Vitamed. So even without a covenant breach, flexibility is not unlimited. It remains conditional on lender approval.
Flexibility Is Tight In Cash, Not Yet In The Covenant Pack
The framing matters here. In this piece I use an all-in cash flexibility lens: operating cash flow less lease-principal payments, capital spending and intangible additions, and contingent-consideration payments. That is the right frame when the question is how much real capital-allocation freedom remains, not how much operating profit the business can produce before hard cash uses.
On that basis, 2025 was tight. Operating cash flow fell to NIS 12.9 million from NIS 26.5 million, mainly because profitability weakened and working capital expanded. Against that, lease-principal payments were NIS 7.5 million, property, plant and equipment additions were NIS 7.0 million, intangible additions were NIS 0.1 million, and contingent-consideration payments were NIS 2.2 million.
That means Rekah was negative by roughly NIS 3.9 million on this basis before new borrowing. And if total lease-related cash is used rather than lease principal alone, leases by themselves consumed NIS 9.6 million, about 74% of operating cash flow. Add the earnout payment and that reaches roughly 91% of operating cash flow.
That is before even talking about the cash balance. Year-end cash and equivalents stood at only NIS 4.3 million, while net financial debt rose to NIS 89.4 million. The cash decline was limited to NIS 2.7 million, but only because the year included NIS 22 million of new long-term debt, against NIS 16.7 million of repayments in that category and a net NIS 5.0 million reduction in short-term bank debt. The pressure did not disappear. It was rolled.
The lease line is also not running off quickly. Lease-principal payments were NIS 7.5 million, but new leases and indexation added NIS 5.4 million. As a result, total lease liabilities declined only to NIS 38.6 million from NIS 41.0 million a year earlier. Cash is being paid, but the tail is shortening slowly.
The Earnout Is Smaller, But Part Of The Relief Is Accounting
At year-end 2025 the contingent-consideration liability fell to NIS 15.3 million from NIS 20.5 million. At first glance that looks like clear relief. The movement analysis shows a more precise picture: NIS 2.2 million was paid in cash, and another NIS 3.1 million decline came from a fair-value remeasurement recognized through profit and loss.
That is a material distinction. The liability did not fall solely because cash already left the system. Part of the decline was a remeasurement. That can improve the earnings read without creating new liquidity.
The same note also includes an important detail on the Tree of Life acquisition. In July 2025 Rekah signed an addendum under which about NIS 5.5 million plus VAT will be paid to the sellers in three equal installments, in September 2025, June 2026, and June 2027, as a final payment for the remaining additional contingent consideration. That does reduce uncertainty at one end of the story, because part of the tail has now been converted into a scheduled payment stream. But it does not remove the line item itself: the year-end balance sheet still shows NIS 3.4 million as a current portion and NIS 11.9 million as non-current contingent consideration.
The implication is that contingent consideration is still operating on two layers at once. One layer is real cash outflow, which already pulled NIS 2.2 million in 2025. The second is an accounting layer that can move earnings through remeasurement even when cash does not move. Anyone reading only the closing liability number can miss that gap.
What Could Change The Read From Here
The counter-thesis is not weak. One can argue that Rekah still has covenant headroom, that the Derech Haim agreement was renewed in January 2026 for six years with an option for four more, and that the filing says the commercial terms are not materially different from the existing arrangement. That does support business continuity and reduces the probability of an immediate operating shock.
But it is not a complete answer to the funding question. The agreement supports continuity, not cash cushion. The same filing says there is no material change in the existing terms, so it is difficult to read it as an immediate margin or working-capital release event. At the same time, the new debt mix is more exposed to prime, leases still require annual cash, and contingent consideration has not disappeared.
What needs to happen over the next two to four quarters is fairly clear. Operating cash flow needs to cover not only the business itself but also leases, base capital spending, and contingent-consideration payments without leaning on new borrowing. Inventory also needs to fall, or at least stop rising, so that improvement comes from working-capital release rather than only from debt rolling. If that happens, covenant headroom turns from theoretical support into actual flexibility. If it does not, those same covenants will mainly remain a mechanism that buys time.
Conclusion
Current thesis: Rekah is still not at the point of immediate banking stress, but it is also far from a capital structure that can be called relaxed. The banks are giving it time, but that time is becoming more floating-rate, more expensive, and more dependent on genuine cash generation.
What changed in the 2025 read is not the fact of covenant compliance. It is the understanding of where the cushion actually sits. It is not sitting in cash, and it is not coming from a fast reduction in obligations. It sits mainly in the ratio buffer versus the banks. That matters because a comfortable financial ratio is not the same thing as capital freedom.
As of April 3, 2026, Rekah’s market cap stood at about NIS 133 million. At that scale, the question of whether the company can reduce dependence on floating-rate bank funding is no longer a technical footnote. It is one of the central questions that will shape how the market reads the next stage.
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