Walgreens Boots Alliance Inc.

The stable outlook incorporates our view that Walgreens Boots Alliance Inc. (WBA) will manage leverage in the mid-3x area even if event risk for acquisition leads to occasional spikes in leverage. We expect WBA's profit and cash flow trends to remain robust over the next two years, and that it will fund shareholder initiatives internally without significant incremental debt. We could lower the ratings if we expect WBA to sustain debt to EBITDA at more than 4x. This could occur if the company issues more than $4 billion of additional debt to fund share repurchases, or if it pursues a large debt-funded acquisition with no credible plan to bring credit measures back in line with the ratings. While unlikely in

...A potential leveraged buyout of WBA could lead to a deterioration in credit metrics, an event risk we are monitoring. Press reports are indicating private equity group KKR & Co. has approached WBA about a leveraged buyout transaction that would take WBA private. We believe a change in the ownership structure would be critical for governance and credit quality because debt could fund a material part of a buyout deal. If a buyout scenario unfolds, we would expect a significant increase in debt, uncertainty regarding potential leveraged buyout owner monetization, and dividend activity. WBA's business investments and cost control efforts are key priorities in the rapidly evolving pharmacy retailing sector. The company took about $1 billion of special charges in fiscal 2019 most of which relate to rationalizing costs and optimizing its store operations. We believe these initiatives are important for WBA as cost savings should help to partly offset reimbursement rate pressures in the pharmacy...

Full Report