Walgreens Boots Alliance’s shareholders are being offered a 63 per cent premium if they sell to private equity firm Sycamore Partners. But some of the company’s creditors could be in line for a similar bonanza.
Back when the drugstore chain — which includes UK high-street stalwart Boots — boasted a market capitalisation in the tens of billions of dollars, it regularly issued highly rated debt, taking advantage of low interest rates. One bond in April 2020 came with a 4.1 per cent coupon and a 30-year maturity. A few weeks ago, those bonds were trading for just 65 cents on the dollar, reflecting that modest coupon and the company’s glum prospects.
Sycamore’s offer could save the day for those bondholders. Investors and lawyers are poring over documents to see what borrowings Walgreens can leave outstanding, and which must be retired at face value, to be refinanced with more expensive paper. Essentially, if Walgreens’ credit rating falls to ‘junk’ status, bondholders could force the company to buy back the bonds at par.