Adidas seeks cash from rare bond after Yeezy split, new CEO

Bloomberg

Adidas AG 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 €1 billion ($1 billion) from its debt sale, according to a person familiar with the matter, who asked not to be identified because they’re not authorised to speak about it. It’s the firm’s first dive in to the region’s public debt market since 2020 and before that it hadn’t 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 antisemitic statements, is expected to leave a €1.8 billion hole in its income, as nearly half of Adidas’s total profits is estimated to come from the brand, according to analysts. The firm’s profit outlook has deteriorated consistently this year and it now expects a full-year operating margin of 2.5% from a previous 4% target.
“We do expect still significant concessions to be paid by Adidas,” in the debt sale, said Shanawaz Bhimji, a fixed-income analyst at ABN Amro Bank NV, 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.
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 by Telefonica Europe BV and Thermo Fisher Scientific Inc, even with issuers having to effectively pay up to compensate investors for the economic uncertainty ahead and 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 in the region last week, to smash through all expectations.
Adidas tightened the spreads on its deal, with the three-year notes at 20 basis points above midswaps from 45 and a seven-year tranche at 45 from about 80 basis points above swaps, the person familiar said. Final investor demand for the deal was over €3.4 billion.