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Walgreens Boots (WBA; Ba2 Stable, BBB- Neg) 2Q Results (ending Feb) thoughts...

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  • S&P that's still on IG is well behind the curve - leverage looks to be holding around ~ 6* on consensus FY24 earnings (Q2 ~came in line & FY24 consensus estimates were already at bottom end of trimmed EPS guidance). Moody's gave it a 2-notch downgrade on Snr Unsec. to Ba2 in Dec.
  • WBA could still see negative rating action from Moody's if it isn't able to turnaround operating performance and de-lever (leverage is trending above Ba thresholds).
  • The €26's seem fairly priced, £300m 3.6% Nov 25's trade wide at Z+138bps (YTW/M 5.85%) - despite barely any cash on hand & what looks like below consensus -$610m in FCF this qtr - some of which seems to be one-off - it has committed to repaying more debt (after $2.6b paydown in FY23) & has access to ample revolvers ($5.75b for next 2-3yrs). Once it gets over the ~$2.2b maturities this year (~ $1b each in bonds & loans) its only outstanding maturity next year is the £25's. Supporting refi after thsi year is a expected recovery in opearting cash flows next year.
  • $ short-end does trade wide as well - front $1.1b Nov 3.8% 24's at $98.4/Z+98.

No firm view from us, we see net negatives for credit in Q2 results, earnings call ongoing.

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  • S&P that's still on IG is well behind the curve - leverage looks to be holding around ~ 6* on consensus FY24 earnings (Q2 ~came in line & FY24 consensus estimates were already at bottom end of trimmed EPS guidance). Moody's gave it a 2-notch downgrade on Snr Unsec. to Ba2 in Dec.
  • WBA could still see negative rating action from Moody's if it isn't able to turnaround operating performance and de-lever (leverage is trending above Ba thresholds).
  • The €26's seem fairly priced, £300m 3.6% Nov 25's trade wide at Z+138bps (YTW/M 5.85%) - despite barely any cash on hand & what looks like below consensus -$610m in FCF this qtr - some of which seems to be one-off - it has committed to repaying more debt (after $2.6b paydown in FY23) & has access to ample revolvers ($5.75b for next 2-3yrs). Once it gets over the ~$2.2b maturities this year (~ $1b each in bonds & loans) its only outstanding maturity next year is the £25's. Supporting refi after thsi year is a expected recovery in opearting cash flows next year.
  • $ short-end does trade wide as well - front $1.1b Nov 3.8% 24's at $98.4/Z+98.

No firm view from us, we see net negatives for credit in Q2 results, earnings call ongoing.