SIR Royalty Income Fund's Strategic Move: Amending Credit Agreement

SIR Royalty Income Fund (TSX: SRV.UN) recently announced the completion of a Twelfth amending agreement to its credit agreement with its senior lender, SIR Corp. ("SIR" or the "Company"). This strategic move aims to support SIR's needs over the upcoming two quarters as it rebuilds liquidity. Let's delve into the details of this agreement and its potential implications for investors.

The Twelfth amending agreement, among other things, increases the maximum Senior Leverage Ratio from 2.5x to 3.0x for SIR's fiscal 2025 first and second quarters, temporarily raising its debt-to-equity ratio. This higher ratio allows SIR to access more funds, potentially enhancing its ability to service debt obligations. However, it also increases risk, which investors should carefully consider.

Excluding the $6.25 million Export Development Canada (EDC) Guaranteed Facility principal repayment in July 2025 from the calculation of fixed charges in the Fixed Charge Coverage Ratio (FCCR) eases debt servicing, providing additional financial flexibility for SIR. This move may signal increased risk aversion by SIR's lenders, indicating potential concerns about SIR's ability to repay its debts. It could also potentially lead to better financial performance if SIR Corp. experiences enhanced cash flow.

Reverting Credit Facility 2 to a non-revolving facility and increasing the applicable interest rates, with the exception of the guaranteed facility with Business Development Bank of Canada (BDC), will likely lead to higher interest expenses for SIR. This increase could impact SIR Corp.'s overall profitability, particularly given the current economic climate and the need to rebuild liquidity. However, the exact impact will depend on the timing and extent of the interest rate increases, as well as SIR Corp.'s ability to manage its debt and cash flow.



Requiring the Lender's approval for any new lease commitments beyond the currently committed Scaddabush locations in Barrie and Oshawa, Ontario, and paying a $25,000 amendment fee, presents strategic implications for SIR Corp. and the SIR Royalty Income Fund. This highlights the Lender's increased control over SIR's expansion plans, potentially limiting its growth prospects. However, it also demonstrates the Lender's willingness to support SIR's liquidity needs and maintain a collaborative relationship.

In conclusion, SIR Royalty Income Fund's Twelfth amending agreement is a strategic move aimed at supporting SIR's liquidity needs over the upcoming two quarters. While this agreement offers SIR Corp. temporary financial flexibility, investors should be aware of the increased risks and potential impact on profitability. As always, it is crucial for investors to stay informed and monitor SIR's financial performance closely.