Private credit lenders are negotiating to provide approximately $4.5 billion in debt to support Sycamore Partners’ potential acquisition of Walgreens Boots Alliance Inc. This deal aims to separate the pharmacy retailer into distinct business segments, a strategy Sycamore has successfully employed in previous acquisitions, such as Staples Inc.

Key players in this financing effort include HPS Investment Partners and Ares Management Corp., both of which are competing to be part of what could be one of the largest leveraged buyout debt deals in over a decade. While discussions are progressing, there remains a possibility that the acquisition and financing plans could face delays or complications.

The private credit financing is part of a broader debt package that could reach up to $12 billion, potentially valuing Walgreens at nearly $20 billion. Major banks, including Citigroup, Goldman Sachs, JPMorgan Chase, UBS, and Wells Fargo, are also involved in crafting financing proposals for the deal.

HPS is leading a $2.5 billion first-lien term loan specifically for Shields Health Solutions, a specialty pharmacy unit within Walgreens that collaborates with healthcare providers. This loan, which is set to mature in six years, is being discussed at a rate approximately six percentage points above the benchmark rate. Goldman Sachs Asset Management and JPMorgan are also participating in this loan.

While representatives from Sycamore, HPS, Ares, Goldman Sachs, and JPMorgan declined to comment, Walgreens has not responded to inquiries regarding the deal.

The scale of the Walgreens acquisition presents a unique opportunity for both private credit lenders and banks to participate in financing. In addition to the private credit discussions, lenders are also negotiating a $4 billion asset-based loan to support Walgreens’ retail operations, which would be secured by inventory, receivables, and prescriptions.

Banks are considering retaining a $2 billion first-out portion of this loan on their balance sheets, ensuring they are prioritized for repayment in case of any issues. Ares, Oaktree Capital Management, and Sixth Street Partners are in talks for a $2 billion last-out portion of the loan.

Furthermore, banks are exploring the provision of a $1.5 billion syndicated term loan and $2.75 billion in bonds, which would primarily finance the Boots business, mainly located in the UK.

In summary, the potential buyout of Walgreens by Sycamore Partners is generating significant interest from both private credit lenders and banks, with a comprehensive financing strategy that could reshape the pharmacy retailer's structure and operations.