Moody’s: Walgreens notes Baa2

Moody’s Investors Service said it assigned a Baa2 to Walgreens Boots Alliance, Inc.’s proposed senior unsecured notes benchmark offering not to exceed $6 billion.

The outlook remains on review for downgrade.

The proceeds, along with funds raised from the issuance of new term loan facilities, will be used to fund a portion of the cash consideration to acquire Rite Aid Corp., Moody’s said.

The transaction is expected to close in the second half of 2016, the agency added.

The proposed notes that will mature in 2018, 2021, and 2023 will be subject to a mandatory redemption in the event that the proposed acquisition of Rite Aid is not completed, the agency said.

The new notes that mature in 2026 and 2046 will not have a mandatory redemption provision, Moody’s said.

The agency said it estimates that pro forma for the estimated $2 billion to $2.5 billion of debt that would stay on Walgreens’s balance sheet in the event the acquisition of Rite Aid does not close, its debt-to-EBITDA ratio will increase to about 3.9x from 3.7x times for the 12 months that ended in February 2016.

But Walgreens does have the ability to repay the debt, should this occur, Moody’s said.

The agency said it anticipates that should the transaction receive regulatory clearance with a level of store divestitures and closings outlined in the merger agreement, Walgreens’s senior unsecured rating would be downgraded to Baa3 and its commercial-paper rating would be downgraded to prime-3 with a stable outlook.

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