Feb 28 PAPER: Rite Aid boosted by credit change (FT)
COMPANIES & FINANCE INTERNATIONAL: Rite Aid boosted by credit change
Financial Times; Feb 28, 2002
By MARIKO SANCHANTA
Rite Aid shares closed up 15 per cent yesterday, after the struggling US drug store chain revealed it had amended its Dollars 1.9bn secured credit facility.
The amendment will allow Rite Aid to issue senior secured notes to plaintiffs, as part of an agreement to settle a class-action suit against the company.
In 1999, a number of Rite Aid shareholders sued the company's former management team and KPMG, its auditors, for false financial reporting. Rite Aid was subsequently forced to restate three years of past earnings. The aggregate amount of the restatements amounted to about Dollars 500m.
Under the settlement agreement, Rite Aid had the option to pay the remaining Dollars 149.5m balance in any combination of cash, common stock, or notes. The company has paid the Dollars 45m cash portion of the settlement with insurance proceeds.
Rite Aid made the final payout with notes because it "did not have the cash" to pay plaintiffs, and could not offer stock because it would have diluted its shares, according to Sherrie Savett, one of the two lawyers representing the class.
Wall Street reacted well to the news, sending shares to close up 15.2 per cent, or 40 cents, to Dollars 3.03.
However, Rite Aid's lenders did put some pressure on the company by increasing the interest rate on its amended credit facility, which includes a Dollars 1.4bn term loan and a Dollars 500m revolver, from 3.5 per cent to 3.75 per cent. As a result, the company expects its annually cash interest expense to increase by Dollars 4m a year.
Copyright: The Financial Times Limited 1995-2002
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URL: globalarchive.ft.com
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Marty's Note: A week before, on Feb 21st ~ noon (pacific time), Sherrie said that it was appealed. According to 8-K, a day later RAD was able to amend. Go figure. |
