Adidas seeks cash from rare bond deal after Yeezy split

Published Mon, Nov 14, 2022 · 10:20 PM

ADIDAS is raising debt from Europe’s bond market for the first time since dropping Ye, the artist formerly known as Kanye West, and just days after slashing profit expectations for a fourth time.

The German sportswear brand is seeking one billion euros (S$1.4 billion) from its debt sale on Monday (Nov 14), according to an anonmyous source. It is the company’s first dive into the region’s public debt market since 2020. Before that, it had not issued bonds since 2014.

The end of the firm’s partnership with rapper and designer Ye, after years of controversial behaviour that culminated in a recent string of anti-Semitic statements, is expected to leave a 1.8 billion euro hole in its income, as nearly half of Adidas’ total profits is estimated to come from the brand, said analysts. The company’s profit outlook has deteriorated consistently this year, and it now expects a full-year operating margin of 2.5 per cent, from a previous 4 per cent target.

“We do still expect significant concessions to be paid by Adidas” in Monday’s debt sale, said Shanawaz Bhimji, a fixed income analyst at ABN Amro Bank, referring to the premium that borrowers pay over their existing debt.

In a bid to revive its fortunes, Adidas plans to sell sneakers of the same design as the Yeezy product. Stemming the damage from ending the lucrative line will be a key challenge for newly appointed chief executive officer Bjorn Gulden when he takes over in January. 

A spokesperson for Adidas did not immediately respond to a request for comment.

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The debt sale is a boon for Europe’s market for new issuance after a year of underwhelming activity, particularly from non-financial companies. Adidas is joined in the market on Monday by Telefonica Europe and Thermo Fisher Scientific, even as issuers are having to effectively pay up to compensate investors for the economic uncertainty ahead, and the impact that may have on future earnings.

The recent pick-up in activity across Europe’s debt market follows easing corporate credit risk amid some optimism that a surge in inflation this year is now starting to moderate. Marketwide issuance topped 58 billion euros in the region last week, smashing all expectations.

“The market seems to have no issues in well-rated names,” ABN Amro’s Bhimji said.

Adidas tightened the spreads on its deal, with the three-year notes at 20 to 25 basis points above mid-swaps from 45, and a seven-year tranche at 50 to 55 from about 80 basis points above swaps. This has pulled in investor orders of over 3.8 billion euros, the source said. The sale is expected to price later on Monday. BLOOMBERG

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