There are 2 covenants that need to be met, one relating to the balance sheet and one related to the debt servicing ability of the company’s business operations.

The debt covenants related to SNS’ line of credit issuer, Fifth Third Bank, is here.

Here’s how the ratios relating to the covenants for Fifth Third look as of Dec 17, 2008:

Ratio | Actual | Required |

Total liabilities/ Total Tangible Net Worth | .89 | <= (1-1.1) |

Fixed charge coverage ratio | 1.25(1)(2) | >=(.7-1) |

The debt covenants related to SNS’ Senior Notes issuer, Prudential, is here.

Here’s how the ratios relating to the covenants for Prudential look as of Dec 17, 2008:

Ratio | Actual | Required |

Total liabilities/ Total Tangible Net Worth | .89 | <= (1-1.1) |

Fixed charge coverage ratio | 1.84(1)(3) | >=(.7-1) |

The required ratios for the fixed coverage ratio increase every quarter ending with a required range of not less than between (1-1.2) for the last quarter of fiscal 2009. The examination of this ratio changes into a rolling 4-quarter test

*after the end of the last quarter of fiscal 2009*, which effectively means that the clock has started ticking beginning the first quarter of fiscal 2009, the numbers for which can be seen above.

Overall, the numbers look ok for now, with trouble not looking imminent in the near term. Especially so when you consider that the 1st and 4th quarters are traditionally the slowest for Steak ‘N Shake. I’d expect to see the debt paid down by the asset sales (the long-term debt of about $11.5 million costs an exorbitant 9%), so this should be less relevant going forward.

Often wrong but seldom in doubt,

Ragu

Notes to calculations:

1. The numerator in the fixed charge coverage ratio calculation works out to $12,136,000.

2. The denominator in the fixed charge coverage ratio calculation works out to $9,684,000.

3. The denominator in the fixed charge coverage ratio calculation works out to $6,602,000.

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