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Rite Aid gives update on debt refinancing
February 8th, 2013
CAMP HILL, Pa. – Rite Aid Corp. has released details on an amended credit facility and new terms loans as part of debt refinancing transactions initiated earlier this month.
The drug chain said Thursday that the transactions include the amendment and restatement of its current revolving credit facility as well as the refinancing of a $1.039 billion term loan due in 2014 and a cash tender offer for its $410 million in 9.750% senior secured notes maturing in 2016 with the proceeds of a new $1.125 billion term loan, along with borrowings under the amended credit revolver.
Rite Aid reported that it has signed commitments for a $1.5 billion revolver and, to the extent that the company receives additional commitments for the credit facility, the proceeds will be used to prepay part of a $331.7 million term loan due in 2018.
The refinancing plan also includes a cash tender offer for Rite Aid's $470 million of 10.375% senior secured notes coming due in 2016 with the proceeds from a new $470 million term loan, together with borrowings under the amended revolver, plus a cash tender offer for the company's $180.3 million of 6.875% senior debentures due in 2013 with available cash.
Rite Aid said it would redeem any 9.750% and 10.375% notes not tendered and related consent solicitations, as well as satisfy and discharge any 6.875% debentures outstanding after the tender offer and consent solicitation.
Earlier this week, following Rite Aid's initial announcement of the debt refinancing, Fitch Ratings reiterated its "stable" outlook rating for the drug chain.
"Rite Aid's same-store sales have been positive in six of the last eight quarters. Underlying prescription count has been stable at flat to positive 1%, with volume growth in the 3% to 4% range over the last year as Rite Aid benefited from the impasse between Walgreens and Express Scripts," Fitch stated Tuesday. "The strong generic wave boosted gross margins, and EBITDA will surpass $1 billion for the first time in fiscal 2013."
Rite Aid also recently jumped a key financial hurdle: In late December, the chain reported net income for its fiscal 2013 third quarter, marking the company's first quarterly profit in over five years.
Still, Fitch noted that Rite Aid faces a bumpy road ahead in trying to wrest market share from financially stronger competitors and improve profitability.
"Fitch Ratings expects that it could be challenging for Rite Aid to maintain EBITDA above $1 billion given potential share losses to larger competitors, ongoing pressure on pharmacy reimbursement rates with less benefit from generics in 2013 and beyond, and giveback of a portion of Express Scripts volume," the rating agency said.
Rite Aid's operating metrics lag behind those of bigger and well-capitalized rivals Walgreens and CVS, Fitch explained, adding that it doesn't foresee meaningful top-line and EBITDA expansion over the next couple of years for Rite Aid beyond the benefit from the generic wave and recent script volume gains from the Walgreens-Express Scripts dispute.
"Rite Aid has largely been unable to participate in the strong industry growth largely due to capital constraints, and the company's inability to appropriately invest in its stores remains an ongoing concern," Fitch stated. "The wellness+ loyalty card program and recent remodeling activity have helped the company to stabilize its prescription volume and see modest front-end growth. However, capital spending remains below levels required to remain competitive, and the company's market share could continue to weaken over time, even in markets where it has a top-three position."