Fitch assigns BBB to Walgreens Boots

Fitch Ratings said it assigned a long-term issuer default rating of BBB and a short-term issuer default rating of F2 to Walgreens Boots Alliance, Inc.

The outlook is stable.

Fitch said the BBB rating incorporates Walgreens Boots’ leading position and increasing market share in the growing drugstore category. Walgreens Boots’ ample free cash flow provides it the financial flexibility to strategically invest in its business and new opportunities while managing its balance sheet.

The debt-financed Rite Aid Corp. acquisition offers Walgreens Boots the ability to strengthen its competitive position and generate significant procurement and cost synergies.

While incremental debt is expected to yield elevated leverage at 4.2 times on a pro forma basis, Fitch expects Walgreens Boots to return adjusted leverage to its historical low-3 times levels by fiscal (August) 2019. Concerns include ongoing pressure on U.S. pharmacy reimbursement rates, Walgreens Boots’ under-penetration in the U.S. specialty pharmacy business, and integration risks with Rite Aid.

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