As the Walgreens Boots Alliance continues to pursue its merger with Rite Aid, Fitch Ratings has rated the related loans as BBB.
Fitch rated the company’s new $4.8 billion and $1 billion term loans and its $1 billion revolving credit facilities, which are expected to be used to finance the proposed Rite Aid acquisition and replaced $6.8 billion in other funding commitments that expired Jan. 27.
The $4.8 billion term loan is structured in two $2.4 billion tranches that mature Oct. 27, 2019 and Oct. 27, 2021, respectively. The $1 billion loan is also structured in two $500 million tranches. Both term loan commitments expire July 31 with potential extensions to Oct. 31. The revolving loan has an accordion feature for an additional $250 million, and can be used for general purposes, including funding the Rite Aid deal.
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Fitch said its BBB rating reflects Walgreens’ financial flexibility to invest in the business and new opportunities, and that the Rite Aid deal could strengthen the company’s competitive position and create procurement and cost synergies.
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Walgreens announced in late-January that it had revised the Rite Aid deal with a lower price and more store divestitures. The company also moved the end date for the merger to July 31, 20 months from the deal announcement, in order to have extra time to gain approval from the U.S. Federal Trade Commission. The price Walgreens will pay has been cut to a minimum of $6.50 per share if 1,200 stores are required for the deal to go through, or $7 per share if 1,000 stores or fewer are required to be sold. The price will undergo a pro forma adjustment if between 1,000 and 1,200 stores are required to be divested.
Walgreens has said it is willing to shed more stores in order for the deal to go through. The business signed a deal under which Fred’s Inc. would purchase 865 stores for $950 million, with the option to potentially buy more stores.