Boots syndication could take up to a year

The syndication of the remaining tranche of Alliance Boots debt could take up to a year after a double blow to the company.

The underwriting banks of the remaining £8.25 billion ($16.77 billion, €11.92 billion) of Alliance Boots debt are considering retaining the tranche for up to a year, according to a source in the debt markets.

The syndication suffered a double blow yesterday as rating agency Standard and Poor’s downgraded the company's long-term corporate credit rating and its rating for its senior and secured debt. It also withdrew its ratings because of a lack of information.

At the same time the UK government cut the money it pays pharmacies for medicines by £470 million, according to UK newspaper The Times.

“This will hold the debt syndication back for at least another three months. Some of the bankers have already said to us the debt may not be syndicated for up to a year. This deal is too big for the market and they don’t want to embarrass themselves,” said a source at a leading debt provider, based on conversations with Alliance Boots' bankers. The spokeswoman for Deutsche Bank, one of the lead underwriting banks, declined to comment.

S&P downgraded Alliance Boots’ credit rating from BB- to B- due to its highly leveraged business model. The ratings agency also took the decision to withdraw its rating of the company’s £520 million of public debt.

“The ratings withdrawal reflects the fact that the company, as a private company, will not provide the information on its financial and operational results and prospects which we view as necessary to be able to continue to do surveillance on the ratings,” S&P said in a statement.

KKR’s spokesman said in a statement: “Alliance Boots is trading well ahead of its expectations and the board is satisfied that the company has the financial resources to meet its needs.”

The UK government decided last year to cut the amount it pays pharmacies for medicines by £300 million. This has now been increased to £470 million, according to The Times newspaper.  It estimated this could hit the company with operating losses from £10 million to as much as £80 million in the next year.

“The article massively distorted the numbers and their potential impact on Alliance Boots. Those numbers apply to the whole industry and the company is trading well ahead of expectations,” KKR’s spokesman said:

However, the debt market source said: “This is going to be negative for the debt syndication even though the operating profit is up £50 million. The impact is negligible but the negative publicitiy combined with the S&P announcement kills the deal.”