Lenders Can Only Watch as Covenant-Lite Debt Strips Influence
- Weak terms leave creditors less recourse if things go awry
- Strict tests are out of fashion at Nine West, Weight Watchers
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Lenders to struggling shoe chain Nine West have watched the company’s debt soar to more than 20 times earnings, and there’s little they can do about it. Unfortunately for them, that’s exactly what they signed up for.
Nine West’s debt is “covenant-lite,” meaning it carries minimal protections for lenders should the company falter and little obligation to explain if something goes wrong. There are no limits on how much debt the company can hold relative to its earnings, and the only required disclosures are annual and quarterly reports, according to S&P Global Ratings analysts. The absence of specific metrics to meet or tests to pass leaves creditors with virtually no power to force answers from their borrower or changes in its behavior.