S&P: Walgreens Boots notes BBB

S&P said it assigned a BBB rating to Walgreens Boots Alliance Inc.’s proposed tranches of senior unsecured notes due 2018, 2021, 2023, 2026 and 2046.

The proceeds will be used to fund a portion of the cash consideration for the Rite Aid Corp. acquisition, including fees and expenses, S&P said, and refinance a portion of Rite Aid’s outstanding debt.

Walgreens Boots will use the remaining proceeds to repay short-term borrowings, the agency said.

This transaction is not expected to change the pro-forma leverage of 4.2x for the Rite Aid transaction, S&P said.

Walgreens Boots’ BBB corporate credit rating and negative outlook are unchanged.

The ratings reflect Walgreens Boots plans to acquire Rite Aid in a transaction that could present integration issues given the substantial amount of resources required to remodel and improve Rite Aid’s stores, S&P explained.

Funding the Rite Aid transaction largely with debt and existing cash will temporarily weaken Walgreens’s leverage, which is expected to rise to more than 4x at transaction closing, from about 3.4x in February.

The merger benefits, including cash flow improvement and pre-payable capital structure, will allow Walgreens to bring leverage to about 4x within three financial quarters after the acquisition, S&P said.

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