S&P Global Ratings downgraded its long- and short-term ratings on Adidas AG XE:ADSDE:ADS1ADDYY on Tuesday to A+/A-1 from A-/A-2, citing deteriorating credit metrics in the wave of the termination of its partnership with Kanye West’s Yeezy. The outlook is negative, meaning the credit agency may downgrade again in the medium term. The Yeezy deal accounted for about 5% of total sales in 2021 and was planned to account for 7% in 2022, the agency said in a statement. Adidas is also facing competitive pressures in the key Chinese market, which accounted for 15.5% of total sales in the nine months through Sept. 30, as well as shrinking consumer demand in Western countries. “Under our base-case scenario, credit metrics will significantly deteriorate with 2022 S&P Global Ratings-adjusted debt to EBITDA of close to 3.0x (up from 0.7x in 2021) while peaking at 4x-5x in 2023 due to the expected operating challenges in the company’s key markets, announced one-off costs, and the impact from the Yeezy partnership’s termination,” said the statement. “We then expect adjusted leverage to gradually improve toward 2.0x-2.5x over 2024-2025 on average.” Adidas ADRs were down 5%.
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