Greystone Logistics Inc. (GLGI)

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Debt Service Coverage Ratio

As part of the IBC loan agreement Greystone "shall maintain on a consolidated basis a Debt Service Coverage Ratio of at least 1.25:1.00"

And the “Debt Service Coverage Ratio” means, as of any calculation date, the ratio of Cash Flow for the four trailing quarters ending on such calculation date, to the sum of the current portion of the Borrowers’ long-term Debt as of such calculation date, plus interest expense of the Borrowers on all Debt for the four trailing quarters ending on such calculation date."

So the calculation is something like:
DSCR = cash_flow_TTM / (current_portion_of_long_term_debt + interest_for_next_year)

On Jan 26, 2015 I asked the company about how they were not meeting the required DSCR of 1.25 and was told "Greystone anticipates being in compliance for the year ended May 31, 2015." At that point we were already 8 months into the fiscal year ending May 31 and GLGI had already received MC's PO for calendar year 2015.

It turns out they ended FY 2015 with a DSCR of 0.54 which is a far cry from 1.25. Perhaps they did not really anticipate being in compliance but were just feeding me optimistic talk. Or perhaps they really did expect to be in compliance and something that was supposed to deliver a lot of cash in those last few months did not follow through...