see below from the just filed Credit Amendment. Note that this new EBITDA coverage ratio replaces the previous one with more flexible terms. SIR CORP had Adjusted EBITDA of -$3.3 million in the quarter ended May 3, 2020 (its Q2). So the Q4/2020 covenant requires not less than 0.4:1 EBITDA coverage ratio, which would mean the forecasted figures agreed to between BNS and SIR are for positive EBITDA in Q4. Not sure what exact fixed charges constitute the denominator as haven't digged far enough. And there is potential for a small carry forward to help meet higher ratios in 2021. This may seem like minutiae, but investing in SIR ROYALTY at this market cap requires some level of certainty that they won't be broke. As they have agreed with their principal lender on these terms, that is mildly encouraging. The labour component of costs comprised 37.5% of revenue in 2019, with food and beverage 27.5%, rent 5.3% ($16 million), and direct costs of restaurant operations 17.5% of revenue. Salaries and benefits are another 3% of revenue, which gets to 90.8% of revenue. some marketing/legals/accounting another 1.4% so what was left was the adjusted EBITDA margin of 7.8% in 2019. THe big expense items very much correlate to revenue, so the reduced menu will cut down on food variety (and associated waste), while labour certainly has plummeted due to lower traffic, rent likely was negotiated down (or partially deferred), and direct operating costs at the restaurant will have a decent chunk fixed, but some variability. Corporate costs were 4.7% of revenue, and with reduced salaries, no accrued bonuses, deferred costs, this can also be materially decreased. It is fair to say that revenue required for break-even EBITDA at the SIR CORP level will have come down sizeably in past few months. It isn't perfect, but as long as the corporate structure can flex enough to get SIR CORP thru these next several months and keep the lenders at bay, the market cap of the TRUST on the other side of this likely goes much much higher from current $11-12 million level. Good luck!
“(c) Minimum EBITDA Ratio. The Borrower shall maintain or cause to be
maintained at all times a Minimum EBITDA Ratio of not less than 0.40:1.0 for Q4
2020; 0.60:1.00 for Q1 2021 and 0.80:1.0 for Q2 2021 and Q3 2021, tested as at the
last day of each of the Borrower’s fiscal quarters, and calculated on a quarterly basis
with reference to the Borrower on a consolidated basis. In the event that the
Minimum EBITDA Ratio for Q4 2020 is greater than 0.40:1.0, the Borrower will
be able to carry forward the differential between Q4 2020 EBITDA and $669,600
(the “Q4 2020 Carry Forward”) to Q1 2021. The Q4 2020 Carry Forward can be
added to actual Q1 2021 EBITDA for the purpose of calculating the Q1 2021
Minimum EBITDA Ratio. For certainty and notwithstanding anything contained
to the contrary in this Agreement, solely for the purpose of determining the
Minimum EBITDA Ratio for any given period, EBITDA and Projected EBITDA
shall be calculated by adding back the actual rent expense paid in such period (and
not the rent expensed for such period) in accordance with GAAP as of the Closing
Date.”