Moody’s Investors Service has assigned an A2 rating to Adidas AG’s proposed €500 million senior unsecured bond due 2028.
Ratings Rationale
Moody’s said, “The A2 debt rating assigned to today’s €500 million bond issuance is in line with the A2 stable issuer rating of Adidas.
“The proceeds from the issuance of this sustainability bond will be used in accordance with Adidas’ newly created sustainability bond framework to fund eligible sustainable projects over the next few years. These may include purchases of recycled materials for sustainably sourced products, investments into renewable energy production and energy-efficient buildings as well as various initiatives to create lasting change for underrepresented communities.
“Adidas’ A2 issuer rating reflects (1) the company’s leading position in the global sportswear market and wide geographic diversification; (2) its strong brand recognition in the apparel and footwear industry supported by product innovations and significant marketing and sponsorship investments; (3) the positive long-term prospects of the industry with increasing health awareness of customers and increased sports participation rates in key emerging markets, such as China; (4) its solid track record of sales growth and operating margin improvement over the last five years; and (5) its low gross leverage, good liquidity and conservative financial policies.
“Adidas’ rating also incorporates (1) the impact of the coronavirus outbreak, which Moody’s anticipates will weigh on the company’s earnings and debt protection ratios in the next 12 months; (2) its exposure to the highly competitive apparel and footwear industry, which is characterized by changes in consumer habits, growing digitalization and increasing awareness over sustainability issues; (3) the company’s sales concentration on a single brand; (4) the company’s sizable commitments to pay fixed sponsorship obligations; and (5) the challenges related to the turnaround of Reebok, notably in the US market.
“Moody’s regards the coronavirus outbreak as a social risk under its Environmental, Social and Governance framework, given the substantial implications for public health and safety. Also, Moody’s believes the retail & apparel sector has an overall moderate exposure to social risks. With digitalization and the rising influence of social media, apparel and footwear companies are struggling to be trendsetters and face more volatile demand and lower brand loyalty. As a sportswear company, Adidas is not immune to the inherent cyclicality and changes in consumer preferences, including increasing awareness over sustainability issues and risks related to responsible sourcing. Moody’s believes that these risks are mitigated by the company’s strong digital capabilities, its long track record of sustainable product innovation and its public commitment to progress towards a circular business model.”
Ratings Outlook
Moody’s said, “The stable outlook reflects Moody’s expectations that Adidas will retain strong credit metrics over time, despite the material impact of the coronavirus crisis on its earnings and cash flows in 2020. The outlook reflects Moody’s expectations that (1) a gradual recovery in the company’s revenues over the course of the next 12-18 months will result in its credit metrics returning towards their pre-crisis levels from 2022, and (2) Adidas’ liquidity will remain good.”
Photo courtesy Adidas
