-- =DJ Rite Aid Looks To Reduce Debt As Loans Come Due In '02 --
By Joe Niedzielski
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--With fresh cash expected from a big debt exchange andshare sales from its stake in AdvancePCS (ADVP), Rite Aid Corp. (RAD) appears to be moving toward its high-profile plan to slash its debt load.
But next year could be the real gut check for the Camp Hill, Pa.-based drugstore chain. That's when the company's critical bank loans come due. Those lines include a $1.1 billion facility backed by inventory and accounts receivable and another line backed by secondary collateral that is somewhat less than $1 billion.
"The company has some financial flexibility through its bank lines, but it needs to operate well and reposition itself to refinance debt," said Diane Shand, an associate director at Standard & Poor's in New York.
Rite Aid currently has about $4.9 billion in debt and another $1.1 billion in capital leases on its books. A slew of anticipated cash, though, could hit its coffers in the next few weeks. Rite Aid's corporate credit rating is currently at single-B-minus with a negative outlook from S&P, while Moody's Investors Service rates the company on a similar scale at B3 with a negative outlook.
Currently on the table is a stock-for-debt exchange which, if fully subscribed, would reduce Rite Aid's debt by $415.4 million and cut annual cash interest payments by about $22.5 million, the company says.
And Rite Aid is also monetizing some of its AdvancePCS assets, the company that was formed when Advance Paradigm Inc. acquired PCS Health Systems Inc. from Rite Aid in October.
"Management has publicly-stated that one of its primary goals is to deleverage the company," Shand said. "Its desire is to sell AdvancePCS because of liquidity issues."
Last month, AdvancePCS registered to sell up to 6.25 million shares currently owned by Rite Aid, which obtained the shares as part of the PCS Health deal.
AdvancePCS also said earlier this week that it plans to offer $200 million of notes, the proceeds of which will be used to pay down senior subordinated debt held by Rite Aid. The Rule 144A deal from AdvancePCS is expected to close this month.
The proceeds of the $200 million note sale and the sale "at current market prices" of AdvancePCS stock could bring in approximately $450 million, according to a Rite Aid spokesperson, who added that it will be available to pay down debt.
Rite Aid's rated bank debt coming due next year includes a $1.1 billion facility that's rated double-B-minus by S&P, the bulk of which is contained in a $600 million revolver. The balance of the facility is made up of $200 million and $300 million term loans. Another facility that's "somewhat less" than $1 billion is rated single-B-minus, Shand said.
Rite Aid shares recently changed hands at $5.85, up $0.41, or 7.5%, on the day. Drug-store chains have recently shown strength with money moving into the sector amid concerns about the slowing U.S. economy. Analysts say drug-store chains are essentially recession resistant because consumers will continue to purchase pharmaceuticals.
In January, Rite Aid posted a loss from continuing operations of 74 cents a share, or $241 million, for the third quarter ended Nov. 25. That compares with a year-ago loss of $1 a share, or $250 million.
Rite Aid, which is in turnaround mode following a 1999 accounting scandal, said recently that January same-store sales rose 12.3%. For the 48 weeks ended Jan. 27, same-store sales rose 8.7%.
The company needs to convince its bankers that it clearly has prospects for recovery to refinance its debt. S&P's Shand added the company still has a long road to recovery.
"This year is not the hurdle," Shand said. "It's really 2002 that becomes the hurdle."
-By Joe Niedzielski, Dow Jones Newswires, 201-938-2039;
joe.niedzielski@dowjones.com
(END) Dow Jones Newswires 03-02-01
1250EST(AP-DJ)--03-02-01 1250EST
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Marty's Note: @ 3:52 ET, RAD is 6.05-6.07 14.9M Share Traded |
