Tiffany & Co. persuaded lenders to grant more financial flexibility, a key step toward keeping a US$16 billion sale to LVMH on course after the coronavirus and U.S. social unrest clouded the jeweler’s prospects.

Lenders agreed to amend the global revolving credit facility “as a precautionary measure,” Tiffany said. Greater flexibility, including temporarily raising the limit on the company’s debt-to-earnings ratio, could help ensure that the deal comes to fruition because any breach of covenants might have given the French luxury giant a loophole to alter or back away from the purchase.

Tiffany’s leverage ratio had been a cause for concern among LVMH executives who have reevaluated the deal amid the new economic landscape, CNBC reported earlier this month. It also reported that LVMH is looking to cut the proposed price, citing people familiar with the matter.

As Tiffany seeks to bounce back from a plunge in sales caused by virus-induced store shutdowns, Chief Executive Officer Alessandro Bogliolo said in Tuesday’s statement that he is “excited we will be taking that journey with LVMH by our side.”

The French luxury giant has said its board met last week to discuss its planned purchase. LVMH ruled out buying Tiffany shares on the open market even though they’ve been trading at a discount to the agreed price of US$135 a share.

Discount shrinks

Some of that discount has evaporated in recent days, with the shares trading at US$124.73 on Tuesday in New York, up 2.1 per cent.

Tiffany reported a 43 per cent decline in sales on a comparable, currency-adjusted basis in the first quarter. It also posted a loss of 53 cents a share, compared with analysts’ estimate of a loss of 27 cents, according to Bloomberg data. The company said it’s unable to provide a financial outlook for the rest of the year.

Despite the hit to sales after stores around the world were closed for coronavirus-related lockdowns, business is bouncing back in China, the company said. In the mainland, retail sales rose 90 per cent on a month-to-month basis in May.

The recovery in China makes it difficult for LVMH to prove there is any material adverse event that occurred to try to change the terms of the deal, Mizuho analyst Greg Lantz wrote in a note.

--With assistance from Joshua Fineman.