Page 56 - SIGA_2010-11 Annual Report

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Saskatchewan Indian Gaming Authority Inc.
Notes to the Financial Statements
Year Ended March 31, 2011
54
17. CAPITAL DISCLOSURES (CONTINUED)
SIGA entered into a credit agreement with financial institutions in order to obtain financing for the casino projects. The agreement
identified five financial covenants which are reported on a quarterly basis to the financial institutions. SIGA monitors its capital
structure using these covenants. The financial covenants are as follows:
(a) The senior fund debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio shall be less than or
equal to 2.5:1.0 for each fiscal quarter ending before or on December 31, 2008 and less than or equal to 2.0 to 1.0 for each
fiscal quarter ending on or after December 31, 2008;
(b) The interest coverage ratio shall not be less than 5.0:1.0;
(c) The total debt service coverage ratio shall not be less than 2.0:1.0;
(d) The fixed charge coverage ratio shall not be less than 1.0:1.0; and
(e) The earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) coverage ratio shall not be less than 2.0:1.0.
Ratios at year-end were 0.94, 7.44, 4.34, 1.00, and 4.07 respectively. In all instances during the year ended March 31, 2011,
SIGA was in compliance with the above covenants.
18. FINANCIAL RISK MANAGEMENT
SIGA, through its financial assets and liabilities, has exposure to a number of risks from its use of financial instruments. The
following analysis provides a measurement of these risks as at March 31, 2011.
CREDIT RISK
SIGA’s principal financial assets are cash, short-term investments, and accounts receivable, which are subject to credit risk. The
carrying amounts of financial assets on the balance sheet represents SIGA’s maximum credit exposure at the balance sheet date.
SIGA does not extend credit to its gaming customers. Credit risk is limited to its accounts receivable balance which consists
primarily of credit extended to business entities for business functions held at the various casino locations. The credit risk on cash
and short-term investments is limited because the counterparties are chartered banks with high credit-ratings assigned by national
credit-rating agencies. Credit risk is not considered significant.
FOREIGN EXCHANGE RISK
SIGA faces exposure to the U.S./Canadian dollar exchange rate through the purchase of goods and services payable in the U.S.
dollar. The risk is not considered significant.
INTEREST RATE RISK
Interest rate risk is the risk of financial loss resulting from changes in market interest rates. SIGA has entered into interest rate
swaps which fix the interest rate on their casino project loans. At March 31, 2011, if interest rates at that date had been 100 basis
points lower with all other variables held constant, net income before distribution to SLGA for the year would have been $2,929,244
(2009 – $3,325,000) lower, arising mainly as a result of higher unrealized losses on interest rate swaps, partially offset by lower
interest expense on variable borrowings. If interest rates had been 100 basis points higher, with all other variables held constant,
net income before distribution to SLGA for the year would have been $2,929,244 (2009 – $3,325,000) higher, arising mainly
as a result of lower unrealized losses on interest rate swaps, partially offset by higher interest expense on variable borrowings.
LIQUIDITY RISK
Liquidity risk is the risk that SIGA is unable to meet its financial commitments as they become due or can only do so at excessive
cost. SIGA manages its cash resources based on financial forecasts and anticipated cash flows.