We have a client who operates as a C Corp (fiscal year, formed over 100 years ago), has minimal corporate debt with a local bank (say $150k). They also have an LLC that owns the real estate for their operating company that has a pretty big mortgage. Let's say the properties are worth $3.5 million but the mortgage is $2.9 million.
The C Corp pays rents that cover the mortgage payment and the real estate taxes but there is very little cushion.
Bank requires us to have Debt Service Coverage of 1.15 to 1.0 at the C Corp level but we need to include the LLC debt in the equation. We are also allowed to include the LLC operating income into our equation. But since the LLC is basically a 1.0 to 1.0 coverage that hurts us with the bank covenant.
The bank also factors in unfinanced Cap ex into the equation that always hurts us.
Is there some better formula I can sell the bank on. I have asked to just exclude Cap ex but they say they need to factor it in. Shareholders take decent salaries and C Corp shows small profits or small losses. Should I be able to factor in Shareholder salaries into the equation