Rite Aid Outlook Revised To Positive From Negative: S&P
Updated: Wednesday, May 9, 2001 11:32 AM ET
NEW YORK (Standard & Poor's CreditWire) May 9, 2001 -- Standard & Poor's today affirmed its ratings for Rite Aid Corp. and Rite Aid Lease Management Co. At the same time, Standard & Poor's revised the outlook to positive from negative.
The outlook revision reflects better prospects for refinancing near-term debt obligations and improving operating performance. Since Feb. 26, 2000, Rite Aid has reduced its debt by $1.64 million through asset sales and debt for equity swaps and has met its debt principal obligations for 2001. In addition, the company's operations have improved throughout fiscal 2001 and internally generated funds should be sufficient to meet its cash interest and capital investment requirements in fiscal 2002. Standard & Poor's believes the above improvements better position Rite Aid to refinance its $2.2 billion of debt obligations due in August and September 2002.
The ratings on Rite Aid Corp. reflect the challenges the company faces in improving operations at its drug stores amidst intense competition. The ratings also reflect the company's significant debt burden and thin cash flow protection.
Although Rite Aid is a dominant player in the drug store chain industry, ranking second in terms of units, credit measures have been deteriorating since fiscal 1995 due to previous management's poor execution of a rapid growth strategy. The company's operating performance has improved throughout fiscal 2001 due to strategies put in place by new management. Rite Aid's recurring unadjusted EBITDA margin increased to 4.2% in fourth quarter fiscal 2001 from 3.4% in the third quarter and a low 2.2% in the second quarter. Still, Rite Aid needs to continue taking aggressive steps to improve store execution and operating efficiencies, as its profitability measures remain significantly below those of its chief rivals, Walgreen's and CVS.
Rite Aid's coverage of interest and capital spending remain slim. The company had $396 million available from its revolving credit facility as of March 3, 2001.
OUTLOOK: POSITIVE
Although credit measures are commensurate with the rating, sales and operating trends at Rite Aid have been improving. Ratings could be raised if the company successfully refinances its debt obligations coming due in 2002 and profitability levels continue to improve resulting in improved credit protection measures. -- CreditWire
RATINGS AFFIRMED
Rite Aid Corp.
Corporate credit rating B
Senior secured debt B-
Senior unsecured debt B-
Subordinated debt CCC+
$1 billion senior secured credit facility BB-
Shelf registration:
Senior unsecured debt (Preliminary) B-
Subordinated debt (Preliminary) CCC+
Preferred stock (Preliminary) CCC+
Rite Aid Lease Management Co.
Corporate credit rating B
Preferred stock CCC+
Source: Dow Jones (>http://www.quicken.com/investments/news/story/djbn/?story=/news/stories/dj/20010509/BT20010509004741.htm&symbol=RAD) |
