HG bonds: Walgreens Boots Alliance pitches 2023 notes backing M&A play

Walgreens Boots Alliance Inc. is shopping a benchmark public offering of two-year (non-call six months) senior notes due Nov. 17, 2023, against the backdrop of an M&A effort. Bookrunners are BofA Securities, J.P. Morgan, SMBC Nikko and Wells Fargo.

Early whispers started in the T+65 area. The notes are subject to a change-of-control put provision, and a make-whole call.

Walgreens on Oct. 14 announced a deal to boost its stake in VillageMD to 63%, from 30%, for a purchase price of $5.2 billion, including $4 billion of cash and a $1.2 billion promissory note. Walgreens concurrently entered into a facility commitment letter with Bank of America providing for a $5 billion senior unsecured multi-tranche delayed-draw term loan credit facility, across a $2 billion, 364-day senior unsecured delayed-draw term loan facility; a $2 billion, two-year senior unsecured delayed-draw term loan facility; and a $1 billion, three-year senior unsecured delayed-draw term loan facility. The company earmarked an aggregate amount of $3 billion or more to fund the VillageMD play, with the remainder to be used for general corporate purposes.

Walgreens today said it will use the net proceeds from the new bond offering for general corporate purposes, which may include acquisitions, including part of the consideration for the VillageMD transaction, according to regulatory filings.

The BBB/Baa2 ratings profile for the proposed notes offering reflects a stable outlook at S&P Global Ratings, and a negative outlook at Moody's. The negative outlook dates to August 2020, and reflects Moody's concerns stemming from disruption caused by the coronavirus pandemic, which the agency said had "taken a further toll on Walgreen's already weaker than expected operating performance."

S&P Global Ratings, however, on Friday revised its outlook up from negative, on a view that Walgreens "has managed through the pandemic with appropriate credit measures, positioning the company to enhance its health and wellness offerings through an ambitious repositioning and investment plan." It noted that while funding for Walgreens' planned acquisitions — including plays for VillageMD, CareCentrix and Shields — would "temporarily" increase the company's leverage "slightly" above the agency's 4x downgrade threshold, Ratings expects the company will manage its leverage "such that it remains commensurate with the current rating, consistent with its past performance."

Walgreens' investment will accelerate the opening of at least 600 Village Medical clinics at Walgreens primary care practices in more than 30 U.S. markets by 2025 and 1,000 by 2027, according to a company statement.