S&P Global Ratings on Dec. 4 placed its BBB+ long-term corporate credit rating on drugstore retailer CVS Health Corp. and its debt on CreditWatch negative, following the retailer's decision to acquire health insurance provider Aetna Inc. for $69 billion.
The rating agency also affirmed its A-2 short-term ratings on CVS, while placing its BBB+ issue ratings on the CVS' senior unsecured notes on CreditWatch negative.
S&P said it expects CVS' financial risk profile to weaken considerably by the transaction, which is funded mainly by debt.
S&P said it intends to resolve the CreditWatch after further evaluating details of the transaction. The agency said it might lower the retailer's long-term ratings by one notch.
S&P noted that the deal presents CVS with opportunities for a new revenue stream and the likely expansion of its pharmacy benefits-management business but it also noted risks.
"The largely debt-funded transaction is by far the largest transaction in CVS' acquisition history, and the unique nature of Aetna's operations relative to CVS' increases operational execution risks, in our view," it said in its note.
The rating agency estimates that the drug retailer's adjusted debt to EBITDA ratio will be in the 4.5 to 4.8 range after the transaction is complete. It said it expects that CVS' debt leverage will remain elevated at more than 4x for more than one year after closing.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.
