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Moody's says may downgrade some Walgreen ratings

Thu, 01/05/2012 - 8:45am
The Associated Press

Moody's Investor Service is putting some of Walgreen Co.'s credit ratings on review for a potential downgrade after the drugstore operator's contract to participate in the Express Scripts pharmacy network expired.

Walgreen and Express Scripts had been in a contract dispute and were unable to resolve it by the contract's expiration date of Dec. 31.

Express Scripts Inc. pays Walgreen and other drugstore operators to fill prescriptions for people covered under pharmacy benefits plans. The companies have said since June that they were preparing to stop business once their three-year contract ended. Walgreen had said that it would rather give up the revenue it gets from Express Scripts than continue filling unprofitable prescriptions.

Walgreen, the nation's biggest drugstore chain, is based in Deerfield, Ill. The company has said that the breakup with Express Scripts, based in St. Louis, will hurt its sales and earnings in fiscal 2012, but it also expects to keep 97 to 99 percent of its fiscal 2011 prescription volume in the new fiscal year.

Moody's said Thursday that the ratings on review for a possible downgrade include Walgreen's "A2" senior unsecured rating and its "Prime-1" commercial paper rating.

The ratings agency said that by not reaching a deal with Express Scripts, Walgreen has a sizeable amount of revenue at risk, as the contract represented about 88 million prescriptions, or $5.3 billion in annual revenue. While more than 100 health plans, employers and other Express Scripts clients have told Walgreen that they have taken steps to continue access to Walgreen's pharmacies this year, Moody's says this accounts for only about 11 percent of the 88 million prescriptions.

Walgreen fills one out of every five prescriptions in the U.S. at its 7,800 stores, and it filled about 819 million prescriptions in its last fiscal year. Its stock fell 12 cents to $32.71 in afternoon trading.

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