Moody's may lower Walgreen

Moody's Investor Service said it placed Walgreen Co.'s ratings on review for possible downgrade, including its A2 senior unsecured rating and its Prime-1 commercial paper rating.

The rating action follows the expiration of Walgreen's contract to participate in the Express Scripts pharmacy provider network on Dec. 31, 2011 as the companies were unable to resolve their contract dispute.

Moody's said the review for possible downgrade will concentrate on the amount of additional prescriptions that Walgreen is able to retain over the coming months. It will also focus on the impact of the expired contract to Walgreen's earnings and cash flow, including Walgreen's plans for selling, general and administrative expense reductions.

Quantitatively, downward rating pressure would occur should earnings be impacted such that retained cash flow to net debt fall below 18.5% or EBITA to interest expense fall below 5.5 times, the agency said.

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