Moody’s drops Walgreens to junk

Moody's Investors Service said it downgraded the senior unsecured ratings of Walgreens Boots Alliance, Inc. to Ba2 from Baa3 and Walgreens Co.'s senior unsecured rating to Ba1 from Baa3. Concurrently, the agency assigned WBA a Ba2 corporate family rating, a Ba2-PD probability of default rating and an SGL-2 speculative grade liquidity rating.

The outlook is now stable. These actions conclude the review for downgrade that was started on Oct. 13.

“The two-notch downgrade of WBA's senior unsecured rating reflects Walgreens' stubbornly high financial leverage, weak interest coverage and pressured free cash flow that Moody's believes will be sustained over the next 12-18 months. It also reflects the high execution risk that Walgreens faces as it implements new strategic initiatives to reverse the sizable operating loss and accelerate the profitability at its U.S. Healthcare segment.

“Despite Walgreens' $2.6 billion in debt repayment in the fiscal year ended August 31, 2023, debt/EBITDA (including the present value of the opioid liability) increased to 5.4x from 4.7x in the prior year and EBITA/interest weakened to 1.9x from 3.3x for the same period,” Moody’s said in a press release.

For Walgreens Co., the one-notch downgrade reflects its debt is senior to the unsecured debt at WBA as WBA's debt is not guaranteed by any operating subsidiaries, the agency explained.

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