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Rite Aid wraps up $1.9 billion refinancing
June 29th, 2009
CAMP HILL, Pa. – Rite Aid Corp. said Monday that it has completed refinancing most of its September 2010 debt maturities, including a $145 million term loan and $1.75 billion senior secured revolving credit facility.
The drug store chain accomplished the comprehensive refinancing plan in a series of transactions. After amending its senior secured credit facility to allow more flexibility for refinancing, Rite Aid made three separate transactions: incurred $525 million in senior secured term loans due 2015 (used to repay existing term and revolving loans due 2010), issued $410 million in senior secured notes due 2016 (used to repay existing revolving loans) and incurred a new $1 billion revolving credit facility expiring in 2012 to replace the remaining portion of a revolver expiring in 2010.
Rite Aid completed the $1 billion revolver on June 26 and had previously announced completion of the term loan and senior secured notes.
With the refinancing, the only significant debt due before the maturity of the new revolver in 2012 are borrowings under accounts receivable securitization programs, which come due in September 2010, Rite Aid said. The amendments to the senior secured credit facility provide extra flexibility to refinance these programs with on- or off-balance sheet facilities, the company noted.
"We are very pleased to have completed the refinancing," Rite Aid chairman and CEO Mary Sammons said in a statement. "The refinancing significantly improves our debt maturity profile and provides us with the time and liquidity to further implement our initiatives to continue to improve our performance. As a result of the refinancing, we are in a much stronger financial position."
Expenses from the refinancing, however, led Rite Aid to lower its fiscal 2010 earnings guidance last week when the company reported first quarter results.
Still, industry analysts say Rite Aid's refinancing plan puts the chain on more solid ground and will enable it to sharpen its focus on improving store operations and ramping up sales.
"Until recently, we had been concerned about Rite Aid’s high leverage and refinancing risk, particularly given the disruption in the credit markets over the past year," Deutsche Bank Securities analyst Bill Dreher wrote in a research note on Rite Aid's fiscal 2010 first quarter results. "Now that the company has effectively refinanced its senior secured revolving credit facility and senior secured term loans that were maturing in September 2010, we feel a lot more comfortable about the company’s liquidity and financial risk profile."
Dreher added that although Rite Aid "now has some breathing room," the company's balance sheet remains highly leveraged.
Fitch Ratings had upgraded Rite Aid's rating outlook from negative to stable earlier this month when the chain announced the $410 million notes offering.
“The rating also reflects Rite Aid’s strong market share position as the third-largest U.S. drug retailer and management’s concerted efforts to improve the productivity of its store base and manage liquidity through working capital reductions and other cost-cutting initiatives,” Fitch commented in making the ratings move.