Amended loan commitments add $550 million in financing
MEMPHIS, Tenn. — Fred’s Pharmacy has procured $550 million in additional funding for its deal to buy up to 1,200 Rite Aid stores in connection with the Walgreens-Rite Aid merger.
In an 8-K filing with the Securities and Exchange Commission yesterday, Fred’s said that for a second time it has amended and restated a commitment letter for a senior secured asset-based loan (ABL) facility commitment letter. The move increased financing by $450 million, from $1.2 billion to $1.65 billion.
Fred’s also amended and restated a commitment letter for a term loan that raises funding by $100 million, from $450 million to $550 million, the filing said.
“Financing made available under the second amended and restated ABL commitment letter and the amended and restated term loan commitment letter will be used to fund the company’s proposed acquisition from Rite Aid of assets, including up to 1,200 retail stores, certain intellectual property, corporate infrastructure and distribution centers,” Fred’s stated in the filing.
The changes, made June 9, also extend the commitment date for the ABL and term loan to July 31 as well as enable Fred’s to further extend the commitment date to Oct. 31.
Fred’s entered into the ABL and term loan commitment letters on Dec. 19, 2016, and amended and restated the ABL commitment letter for the first time on Jan. 18.
In February, another SEC filing indicated that Fred’s amended a revolving loan commitment — to $225 million from $150 million — in the event that it must acquire additional Rite Aid stores as part of Walgreens Boots Alliance’s planned acquisition of Rite Aid.
On Dec. 19, Fred’s announced a $950 million cash deal to purchase 865 Rite Aid stores to be divested for antitrust clearance of WBA’s agreement to acquire Rite Aid. Fred’s deal to buy the Rite Aid stores is subject to Federal Trade Commission approval and hinges on WBA’s completion of the Rite Aid transaction.
Also under the terms of the agreement, Fred’s could be required to buy more Rite Aid stores if the FTC calls for WBA to divest additional locations — a scenario appears to be playing out. On Jan. 30, WBA and Rite Aid extended the end date for the acquisition deal to July 31, lowered the purchase price for the transaction and raised the number of stores that could be divested from up to 1,000 to as many as 1,200.
Fred’s hasn’t specified where it would add stores in the Rite Aid deal. But earlier this month, Jefferies analyst Brian Tanquilut said in a research note that Fred’s stands to pick up “significant operations” in California, Colorado, Florida, North Carolina and Washington, on top of augmenting its Southeastern market share.
Currently, Fred’s has 601 discount general merchandise stores, including about 360 in-store pharmacies, and three specialty pharmacy-only locations. The store count also includes 14 franchised Fred’s Pharmacy locations.
Published reports on the lengthy antitrust review of the Walgreens-Rite Aid merger — now near the 18-month mark — have said that the FTC remains concerned about Fred’s viability as a competitor. Fred’s would be acquiring twice as many stores as it currently operates, and the company has continued to post poor financial results. Last week, Fred’s reported a net loss, declined revenue and decreased same-store sales for its fiscal 2017 first quarter.