BURLINGTON, ON, Aug. 9 /CNW/ - SIR Royalty Income Fund (the "Fund") (TSX: SRV.UN) announced today that SIR Corp. ("SIR") has entered into a Credit Agreement with a Canadian Schedule 1 bank to finance its restaurant expansion plans. A copy of the Credit Agreement will be filed shortly on SEDAR at the Fund's request.
The Credit Agreement is a seven-year facility for a maximum principal amount of $16 million, and is designed primarily to facilitate construction of new restaurants by SIR. These new restaurants are expected to become subject to the License and Royalty Agreement royalty pool arrangements over the next few years as they are completed, and thus benefit the Fund both as a result of geographic diversification and increased scale and because new restaurant growth is designed to be accretive to Fund unitholders. The loan is secured by substantially all of the assets of SIR and most of its subsidiaries, which are also guarantors. The SIR Royalty Limited Partnership (the "Partnership") and the Fund have not guaranteed the Credit Facility.
"Our long term goal is to have 68 Royalty Pooled restaurants by the end of 2010. This new debt facility will enable us to move forward on our restaurant expansion plans at a lower cost of capital, while retaining all of the advantages of corporate ownership of our restaurants," said Peter Fowler, President and CEO of SIR Corp. "We are evaluating strategic locations across Canada to build our market presence. As we advance our expansion plan towards 2010, we expect to reduce our per restaurant overheads through economies of scale and benefit from an enhanced national profile. With more restaurants, we expect funds available for marketing should also increase, which will support our ongoing efforts to drive same store sales growth. We believe these factors will benefit Fund unitholders and also contribute to improved profitability of SIR Corp."
The Credit Agreement provides, as part of the total $16 million availability, for a $2 million revolving facility and a $1 million treasury management facility to hedge the construction facility, leaving $13 million for construction purposes. The construction component provides for interest payments only during the first two years of the facility, absent, among other things, default, asset dispositions or further equity or debt issues by SIR. Certain financial covenants will apply to SIR, including a maximum senior cash flow leverage ratio and a minimum fixed charge coverage ratio. Annual capital expenditures by SIR are also subject to a cap.
The bank debt is "permitted indebtedness" within the meaning of the agreements between the Fund, the Partnership and SIR, and as a result the Fund and the Partnership have, as contemplated in the existing agreements, subordinated and postponed their claims against SIR to the claims of the bank. This subordination, which includes a subordination of the Partnership's rights under the License and Royalty Agreement between the Partnership and SIR whereby the Partnership licenses to SIR the right to use trade-marks and related intellectual property in return for royalty payments based on revenues, has been effected pursuant to the terms of an Interlender Agreement, a copy of which will also be filed shortly on SEDAR.
Under the Interlender Agreement, absent a default or event of default under the Credit Agreement, ordinary payments to the Partnership and the Fund can continue and the Partnership can exercise any and all of its rights to preserve the trademarks and related intellectual property governed by the License and Royalty Agreement. However, if a default or an event of default were to occur, then payments to the Fund and the Partnership could cease and the related rights of the Fund and the Partnership could be subject to a "standstill" obligation for a period of up to 120 days (which may be extended if the bank is pursuing remedies). The Interlender Agreement also contains various other typical covenants of the Fund and the Partnership.
About SIR Corp.
SIR is a privately held Canadian corporation that owns and operates a portfolio of more than 40 restaurants in Canada. SIR's concept brands include: Jack Astor's(R) Bar and Grill, with 24 locations; Alice Fazooli's!(R), with five locations; and Canyon Creek Chop House(R), with seven locations. SIR also operates one-of-a-kind "signature" brands in downtown Toronto, which comprise the upscale reds(R), Far Niente(R) & Soul of the Vine(R), Brasserie Frisco(TM), the casual Armadillo Texas Grill(R) and the Loose Moose Tap & Grill(R). All trademarks related to the concept and signature brands noted above are used by SIR under a license agreement with SIR Royalty Limited Partnership in consideration for a Royalty, payable by SIR to the Partnership, equal to six percent of the revenue of the 38 restaurants currently included in the Royalty Pool. For more information on SIR Corp. or the SIR Royalty Income Fund, please visit www.sircorp.com
About SIR Royalty Income Fund
The Fund is a trust governed by the laws of the province of Ontario that receives distribution income from its investment in the SIR Royalty Limited Partnership and interest income from the SIR Loan. The Fund intends to pay distributions to unitholders on a monthly basis.
Caution concerning forward-looking statements
Certain statements in this news release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements are such words as "may", "will", "expect", "believe", "plan", "anticipate", "intend", "estimate" and other similar terminology. These statements reflect SIR Management's current expectations regarding future events and operating performance and speak only as of the date of this document. The Fund and SIR expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein to reflect any change in expectations with regard thereto or any changes in events, conditions or circumstances on which any statement is based.
In formulating the forward-looking statements contained herein, management has assumed, among other things, that business and economic conditions affecting SIR's restaurants and the Fund will continue substantially in the ordinary course, including without limitation with respect to industry conditions, general levels of economic activity (including in downtown Toronto), regulations (including regarding employees, food safety, tobacco and alcohol), weather, taxes, foreign exchange rates and interest rates, that there will be no pandemics or other outbreaks of disease or safety issues affecting humans or animals or food products, and that there will be no unplanned material changes in its facilities, equipment, customer and employee relations, or credit arrangements. As well, while providing for the advantages to both the Fund and SIR described above, the increased level of first ranking secured debt of SIR, coupled with the subordination and standstill provisions, increase both SIR's financial leverage and the chance of the Fund having to suspend distributions in the event that SIR experiences financial difficulty. However, the generally interest-only feature for the first two years, plus the ongoing ability, if needed, of SIR to monetize its indirect interest in Fund units, further mitigate the risk of default by SIR. For more information concerning the Fund's risks and uncertainties, please refer to the Fund's periodic interim filings, its October, 2004 prospectus and/or its March 30, 2007 Annual Information Form.