By Melissa Fares and Silvia Aloisi
NEW YORK/MILAN (Reuters) - U.S. luxury jeweler Tiffany & Co, which is being bought by France's LVMH for $16 billion, said on Tuesday it had amended some of its debt agreements to gain more financial leeway amid the coronavirus pandemic after its quarterly sales sank 44%.
The amendments included raising the maximum leverage ratio, which assesses the ability of a company to meet its financial obligations, to 4.5 from 3.5. Some analysts had warned that Tiffany was at breaching its debt covenants in the second quarter.
Tiffany shares were up more than 2 percent in early trading.
Sources have told Reuters that LVMH Chief Executive Bernard Arnault has been exploring ways to potentially pressure Tiffany to lower the agreed price of $135 per share, including by examining its compliance with its debt covenants.
However, Arnault has decided not to renegotiate the agreed price for now, sources told Reuters on Friday.
The acquisition, scheduled to be completed in mid-2020, has yet to receive some of the necessary regulatory approvals, and LVMH could revisit the issue before the deal closes, especially if Tiffany's financial condition deteriorates..
Tiffany's new debt covenants should lower the risk of breach that could disrupt the LVMH acquisition, Credit Suisse analyst Michael Binetti said.
An LVMH spokesperson was not immediately available for comment.
Tiffany, which also drew $500 million from one of its credit facilities during the first quarter, said it had ample cash on hand and was in compliance with all debt covenants as of April 30.
"I am confident that Tiffany's best days remain ahead of us and I am excited we will be taking that journey with LVMH by our side," Tiffany CEO Alessandro Bogliolo said in a statement.
The company's comparable sales, which strip out the effects of currency exchange rates, tumbled in the three months to April 30, as the pandemic gutted demand for its jewelry and forced it to shut the bulk of its 300 stores across the globe.
Based in New York and best known for its diamond engagement rings, Tiffany faces further headwinds in the next few months as the health emergency has plunged major economies into recession and brought international tourism to a halt.
"The biggest challenge will be getting past the absence of events like weddings that have been lost or postponed," said NPD Chief Analyst Marshal Cohen. "These gift-driving events are hard to lose as a retailer."
Those problems have been compounded in recent weeks by widespread U.S. protests that included some incidents of shop looting following the death of an unarmed black man, George Floyd, after a white police officer knelt on his neck for more than eight minutes.
Net sales nearly halved to $555.5 million in the first quarter, while it posted a loss of $64.6 million compared with a profit of $125.2 million a year earlier.
Tiffany said sales were on a recovery path in the key Chinese market, which began emerging from the coronavirus lockdown earlier than the United States and Europe, although revenues were still down 40% globally in May.
(Reporting by Melissa Fares in New York, Silvia Aloisi in Milan and Praveen Paramasivam in Bengaluru; Editing by Sriraj Kalluvila and Bernadette Baum)