(Bloomberg) -- JPMorgan Chase & Co. is sounding out investors on a potential high-yield bond sale by Walgreens Boots Alliance Inc. to address the recently downgraded drug-store chain’s near-term debt maturities, according to people familiar with the matter.
Early pricing discussions involve a yield in the 7.5% area, said the people, who asked not to be identified because the information is private. Deal size and tenor have yet to be determined. Walgreens has a note with $1.16 billion outstanding that matures Nov. 18 and trades near par, plus a £300 million ($387 million) bond due in late 2025, according to data compiled by Bloomberg.
JPMorgan and Walgreens declined to comment.
If Walgreens pursues a bond sale, it would be the company’s first since being downgraded to junk territory by both Moody’s Ratings and S&P Global Ratings. The cost would be considerably more expensive. The highest coupon on its outstanding notes is 4.8%, on a 2044 bond that was sold 10 years ago.
Walgreens slashed its fiscal-year guidance in June due to a worsening retail environment and announced it would close significantly more stores as its new chief executive officer seeks to turn the business around.
The firm nearly halved its dividend in January, three months after changing CEOs as smaller peer Rite Aid Corp. remains in bankruptcy and CVS Health Corp.’s diversification efforts from retail have shown signs of strain. Walmart Inc. abandoned plans to build out a network of low-cost health clinics due to escalating costs and reimbursement challenges.
S&P said in its two-notch downgrade to BB last week that Walgreens’ leverage ratio might stay above five times in fiscal 2025 and beyond. It added the company “need to refinance a large amount of debt over the next few years is a key risk.” Walgreens has $1.4 billion of maturities in the fiscal year starting Sept. 1, plus $4.6 billion of bonds and term loans coming due in the following two years, said S&P.
Moody’s rates Walgreens three notches into high yield at Ba3 following its latest downgrade earlier this month, while Fitch Ratings withdrew its grades in 2021.
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