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S&P Global Ratings, a U.S.-based credit rating agency and a division of S&P Global, has slashed its long- and short-term credit ratings for Adidas, the German multinational sportswear giant, due to the impact of Kanye West’s termination on the company’s earnings.
As a renowned provider of financial research and analysis on stocks, bonds, and commodities, S&P Global Ratings assesses companies’ ability to repay their borrowings and has downgraded Adidas’ debt ranking from “A+” to “A-,” with a warning that further reductions could follow.
The recent action by the rating agency follows Adidas’ trading update two weeks ago that it could suffer a potential revenue loss of €1.2 billion ($1.3 billion) if it fails to sell its existing Yeezy stock after terminating its partnership with Kanye West and the Yeezy brand in October 2022.
In light of these developments, Adidas expects a high-single-digit decline in currency-neutral sales in 2023 and one-time costs of up to €200 million ($213.7 million).
If the company decides not to repurpose any of the existing Yeezy products going forward, its worst-case scenario for the year would be a loss of €700 million ($748 million) in 2023.
S&P’s decision to downgrade Adidas’ debt ranking from “A+” to “A-” highlights the numerous business challenges the company is facing, including the termination of its Yeezy partnership, intense competition in China, and declining consumer demand in Western countries.
As a result, Adidas shares dipped 46 basis points to €139.16 ($147.27), leading to a market capitalization below €25 billion ($26.45 billion) and a year-to-date gain of less than nine percent at the time of writing this report.
Since Adidas severed ties with Kanye West due to a series of antisemitic comments that sparked widespread outrage in October 2022, his net worth has declined by $1.6 billion, from $2 billion to $400.1 million, according to Forbes.
West’s $400-million fortune is made up of real estate, cash, a music catalog, and a five-percent stake in his ex-wife Kim Kardashian’s shapewear company, Skims.
