CAMP HILL, Pa. — Rite Aid Corp. plans to issue $426 million senior unsecured notes due in 2020 to help fund a refinancing of debt.
The drug chain on Thursday began a cash tender offer to buy $405 million of its 9.375% senior notes due in 2015. The company said it would call any of the notes not tendered in the offer for redemption.
Rite Aid aims to use the proceeds from the offering of 9.25% senior notes due in 2020 to help pay for the purchase of the notes maturing in 2015.
The tender offer of $998.75 per $1,000 of face value expires on May 31. Those who tender their notes by that date also receive a $30 consent payment per $1,000 of notes tendered.
According to Rite Aid, the new debt offering represents an add-on to its issuance in February of $481 million in 9.25% senior unsecured notes due in 2020. The proceeds of those notes were used to help fund the company’s purchase of about $405 million of 8.625% senior notes due in 2015.
On Thursday, Moody’s Investors Service upgraded Rite Aid’s Corporate Family Rating (CFR) to Caa1 from Caa2.
"The upgrade acknowledges Rite Aid’s ability to address its 2015 debt maturities by refinancing them until 2020 without increasing its interest expense. Moody’s believes that the refinancing of Rite Aid’s 2015 debt maturities somewhat reduces the likelihood of Rite Aid voluntarily choosing to restructure its debt over the medium term," the rating agency stated. "However, Rite Aid’s Caa1 CFR reflects that the likelihood of a debt restructuring remains high given its weak credit metrics and unsustainable capital structure."
Moody’s also reiterated its "stable" outlook for Rite Aid.
"The stable outlook acknowledges Rite Aid’s adequate liquidity and lack of near dated debt maturities," Moody’s said. "Rite Aid’s next significant debt maturity is in 2014, when the remaining $1 billion of term loans is due. In addition, the stable outlook reflects our expectation that Rite Aid’s earnings will modestly improve but that the improvement will not meaningfully improve its credit metrics."
Late Thursday, Fitch Ratings maintained its "B-" Issuer Default Rating (IDR) for Rite Aid but upgraded its rating outlook for the drug chain.
"As a result of its recent debt refinancing activity as well as the stabilization in its operating trends, Fitch has affirmed its ratings on Rite Aid and revised the rating outlook to ‘stable’ from ‘negative,’ " Fitch stated.
*Editor’s Note: Article updated with rating agency comment.