Helen of Troy's Credit Amendment: Tightened Leverage Controls but Growth Flexibility Preserved

Helen of Troy Limited's CFO highlighted the importance of financial flexibility amid ongoing macroeconomic challenges, citing recent credit facility amendments as key to navigating uncertainty. Lender consensus proved strong, with unanimous approval for revised terms including a reduced revolving credit commitment and adjusted covenants. The facility size was trimmed to $750 million from $1.0 billion, though the company cautioned this reduces immediate liquidity capacity compared to prior levels.

Management projects a net leverage ratio between 2.75X and 2.85X by year-end, reflecting continued debt reduction efforts. This targets amid a 3.4% quarter-over-quarter decline in Q3 net sales to $530.7 million, though margin expansion from cost savings initiatives and the Olive & June acquisition offset some revenue pressure. While the leverage holiday provides operational breathing room, the reduced credit facility means less uncommitted capital for opportunistic moves if market conditions shift abruptly. The strategic intent remains clear: prioritize covenant compliance and balance sheet resilience over near-term liquidity buffers as macro headwinds persist.

Tightening Leverage, Preserving Flexibility

Helen of Troy Limited has tightened its financial guardrails under a November 2025 credit facility amendment. The maximum allowable leverage ratio will gradually fall from 4.50 times debt to earnings (through November 2026) down to 3.50 times by late 2027. This tapering schedule creates a clear path toward a lower-risk balance sheet over the next two years. The move reflects disciplined capital management as the company navigates uncertain macroeconomic conditions.

A key feature of the new structure is an interest margin tier that activates once leverage hits 4.00 times. This design means borrowing costs will rise if the company's debt levels increase significantly. The CFO emphasized that the $750 million revolving credit limit remains sufficient for near-term operations, with lenders unanimously approving the changes. Still, the higher potential interest rates represent a tangible cost if leverage expands quickly.

Significantly, the amendment carves out strategic flexibility for growth. A "leverage holiday" allows qualified acquisitions after August 2027 without triggering covenant restrictions. This creates a narrow window for bolt-on purchases while the core leverage ratio remains under pressure. The company explicitly framed the changes as enhancing flexibility during economic challenges, though the higher borrowing costs at elevated debt levels remain a balancing factor.

The revised facility also shifts the interest coverage ratio calculation to use EBITDA instead of EBIT, aligning with industry standards. While this adjustment affects covenant calculations, it doesn't change the fundamental borrowing constraints. Investors should watch how quickly leverage returns to comfortable levels relative to the tightening covenant schedule, particularly given the current environment of elevated interest rates across sectors.