SIR Royalty Income Fund announces SIR Corp. debt financing



    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.





For further information:

For further information: Jeff Good, Chief Financial Officer, SIR Corp.,
Tel: (905) 681-2997; Bruce Wigle, Investor Relations, Tel: (416) 815-0700 ext.
228, Email: bwigle@equicomgroup.com


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