Adidas receives billion euro loan due to Corona crisis

German sporting goods manufacturer Adidas is in deep crisis due to the Corona pandemic. Already at the beginning of the month, Adidas had to publicly apologize after the Herzogenaurach-based company took heavy criticism for its plan to pay the April rent of its own 22 shops in Germany can no longer be paid. Now the financial difficulties are astronomical. After, due to the Corona crisis, the retail stores in Europe, America, Latin America and Asia were closed, 60% of sales are said to have been lost. Without government aid, the company will not survive the crisis. This is apparently also the view of the German government, which is helping the company through the state Förderbank KfW is providing 2.4 billion euros. The company will receive a further 600 million from 7 private banks. The bank consortium consists of UniCredit, Bank of America, Citibank, Deutsche Bank, HSBC, Mizuho Bank and Standard Chartered Bank.

Global sales slump due to Corona virus
In addition to the significant decline in sales and earnings since the end of January in China and since the end of February in Japan and South Korea, adidas has also seen a severe impact on sales and cash flow generation in most other parts of the world since mid-March. As a result of the rapid spread of the coronavirus worldwide, almost all company-owned and partner-operated stores in Europe, North America, Latin America, emerging markets and Russia/CIS as well as in large parts of Asia-Pacific have been temporarily closed for four weeks. As a result, over-the-counter wholesale and retail operations in these markets, which otherwise account for 60 % of the company's business, have come to a complete halt.

About the syndicated loan and its terms
The planned syndicated loan involves the provision of a credit line at market conditions, with KfW's share of the risk amounting to 80% of the financing amount, i.e. the state-owned bank bears 80% of the default risk or, in other words, it is liable for 19.2 billion if Adidas is unable to repay the loan. The drawdown of the syndicated loan does not result in a state participation. The credit agreement does not provide for automatic disbursement of funds, nor does it contain any obligation to draw down the funds made available. The credit agreement has a term of 15 months (until July 2021). The company can terminate the loan prematurely at any time. Adidas intends to repay all drawn portions of the loan, including interest and fees, as soon as possible.

The terms of the syndicated loan include the de facto suspension of dividend payments over the term of the loan agreement. In addition, the Executive Board recently decided to stop the buyback of adidas shares as well as to waive its own short- and long-term bonuses, which in total represent 65 % of the annual target compensation, for the year 2020. Similarly, the long-term bonus component for the current fiscal year will be waived for the company's other executives. All this is in line with adidas' liquidity management in the current environment.

"The current situation poses serious challenges even to healthy companies. We would like to thank the government for its swift and comprehensive action in response to this unprecedented global crisis."

said Kasper Rorsted, adidas CEO. "We are doing our utmost to ensure the long-term well-being of adidas, our 60,000 employees as well as our partners and are already implementing numerous measures. These measures include tightly controlling all costs and short-term working capital, reducing management compensation, halting the share buyback program and suspending dividend payments. Beyond this, however, access to additional liquidity is necessary to overcome this crisis. We will repay the drawn portions of the loan, including interest and fees, as quickly as possible."

The further development of the coronavirus pandemic and thus its impact on the company's business cannot be predicted at this point in time. Therefore, adidas is still unable to provide an outlook that includes this impact for the full year 2020. Against this backdrop, it has been decided to bring forward the publication of the first quarter 2020 results to April 27, 2020, in order to inform the market about the company's financial results in as timely a manner as possible.

The astronomical scale of the economic damage caused by a shutdown of social life due to the Corona virus is beginning to take shape with this announcement. And adidas is not the only company to be affected. According to insiders, competitor Puma has also applied for a loan in the hundreds of millions.