Boots rating affirmed at BB- as ownership change leaves leverage unchanged

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Boots rating affirmed at BB-

Highlights

Fitch Ratings affirmed Boots Group Intermediate Limited's long-term issuer default rating at BB- after the $8.9 billion sale to Wittington Investments and Fairfax Financial, with leverage unchanged.
Buyers to inject $4.7 billion in new equity, including $1.25 billion to redeem preferred equity, with deal closing expected in Q1 2027 subject to regulatory approval.
Fitch projects EBITDAR of nearly $1.47 billion in fiscal 2027 rising to $1.65 billion by 2029, with 4% annual pharmacy sales growth and sustained positive free cash flow.

Ownership deal and rating rationale

As reported by Fitch Ratings, The Boots Group Intermediate Limited's long-term issuer default rating remains at BB- and its senior secured debt ratings stay at BB with recovery ratings of RR3 after a definitive agreement for Wittington Investments Limited and Fairfax Financial Holdings Limited to acquire the business from Sycamore Partners and the Pessina family.

Fitch says the transaction is leverage-neutral, with the new owners planning to keep Boots' current debt instruments and debt levels in place. The buyers are expected to inject U.S.$4.7 billion of fresh equity, including funding to redeem U.S.$1.25 billion of preferred equity issued under the previous ownership structure. The acquisition, valued at U.S.$8.9 billion, is expected to close in the first quarter of 2027, subject to regulatory approvals and customary closing conditions.

According to Fitch's assessment, Boots' rating continues to be supported by its strong competitive position in the UK health, beauty and pharmacy market. That business profile is balanced by moderate EBITDAR leverage of about 4.5x and fixed-charge coverage of around 2x, while the agency says the new owners' retail background and longer-term investment horizon are supportive for the group's strategy.

Earnings outlook and UK retail impact

Fitch broadly maintains its forecast for EBITDAR at nearly U.S.$1.47 billion in fiscal 2027, before rising to U.S.$1.65 billion by fiscal 2029. The agency says growth at Boots UK retail slows during the first nine months of fiscal 2026 because of a softer retail environment, a trend it expects to continue into fiscal 2027 before store investment helps sales growth recover from fiscal 2028.

Margin improvement is still expected over the period as operating leverage and cost efficiencies offset pressure from product mix and the shift toward online sales. Fitch expects EBITDAR margins of 11.5% to 12%, a level it sees as comparable with peers and closer to the midpoint of the bb category.

Boots' network of about 2,300 stores, including 370 opticians, across the UK and Ireland remains central to that outlook. Fitch highlights the company's nationwide pharmacy footprint, leading positions in beauty and health and wellness, about 17 million active loyalty card members, and own-brand products as durable advantages supporting earnings and cash flow.

In pharmacy, Fitch expects sales to grow 4% a year over fiscal 2027 to fiscal 2029, helped by higher NHS funding under England's Pharmacy First programme. The agency says that could be particularly beneficial for Boots' 800 smallest pharmacies, while it continues to forecast positive annual free cash flow under the new ownership, with average margin near 1% over the period and scope for gradual deleveraging if excessive dividends are avoided.

Our earlier article on Fairfax’s IDBI Bank acquisition and restructuring plans explained how the company aims to consolidate its Indian financial holdings under IDBI after receiving approval to buy a controlling stake in the lender. We noted that Fairfax intends to transfer stakes in IIFL Capital Services and Digit to IDBI Bank to create a broader financial services group, subject to further regulatory clearances and a defined leadership structure.

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