Morning Commentary: High-grade issue pipeline quiet; Walgreens active after Rite Aid deal ends

Tupelo, Miss., June 29 – The investment-grade primary market stayed quiet early Thursday with no reported issuers in the deal pipeline.

More than $13 billion of bonds were sold in the first three sessions of the week.

Walgreens Boots Alliance Inc.’s notes (Baa2/BBB/) were active over the morning in the secondary market following the announcement that its acquisition of Rite Aid Corp. was off.

The transaction was abandoned because it was not expected to pass anti-trust concerns from regulators. Walgreens instead plans to purchase more than 2,000 of Rite Aid’s stores.

Walgreens’ 3.45% notes due June 1, 2026 opened at 99.19 after last trading on Wednesday at 100.08, according to a market source. The notes were seen late morning at 100.22.

The notes headed out flat on Wednesday at 123 basis points bid, a market source said.

The retailer sold $1.9 billion of the notes on May 26, 2016 at 99.748 to yield 3.48% and a spread of 165 bps over Treasuries.

Walgreens’ 4.65% notes due June 1, 2046 traded in the 105.03 area early Thursday after last trading on Tuesday at 105.83, a market source said.

The company sold $600 million of the notes in the May 26, 2016 offering at 99.216 to yield 4.699% and a spread of Treasuries plus 205 bps.

Both tranches were part of a $6 billon five-tranche bond offering with proceeds expected to be used to help fund the cash portion of the acquisition of Rite Aid, to retire a portion of Rite Aid’s existing debt and for general corporate purposes.

Under the terms of the bond sale that closed on June 1, 2016, if the merger was not completed on or before the occurrence of a special mandatory redemption trigger, set for one year after the note sale closes, Walgreens would be required to redeem the notes due in 2018, 2021 and 2023 at a price equal to 101% of the principal of the notes to be redeemed, plus accrued and unpaid interest. Proceeds from the sale of the 2026 and 2046 notes then would be used for general corporate purposes.

Walgreens Boots Alliance is a Deerfield, Ill.-based drugstore operator.

Overall secondary market volume totaled $18.83 billion on Wednesday, up from $18.79 billion on Tuesday and $14.99 billion on Monday, according to Trace.

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