Nemer,
Uh oh...it looks like a big chief tablet failure on RAD.
Dang......
Paul
Moody's Cuts Rite Aid
Wed Feb 6, 6:07 PM ET
By Jonathan Stempel
NEW YORK (Reuters) - Rite Aid Corp.'s credit and debt ratings were cut on Wednesday by Moody's Investors Service, which warned the struggling No. 3 U.S. drugstore chain could have difficulty making interest payments.
Moody's warned that Camp Hill, Pennsylvania-based Rite Aid, which has 3,520 stores, may not be able to "reliably" pay interest on all its debt "going forward".
"We totally disagree with Moody's assessment," said Karen Rugen, Rite Aid's senior vice president of communications. "We have ample liquidity with full use of our $500 million revolving credit facility, as well as proceeds from our recent sale of convertible notes, which netted us $250 million, to pay our debt maturing in 2002 and 2003."
The downgrade strikes a blow at Rite Aid's months-long bid to turn itself around, following four years of losses and a failed expansion that left it near bankruptcy, and compete more effectively with Walgreen Co. and CVS Corp. , as well as discounter Wal-Mart Stores Inc.
"Missed payments have become more of a concern," said David Novosel, managing director and head of fixed-income research at Banc One Capital Markets Inc. in Chicago.
"It appears Rite Aid should have sufficient cash flow to meet its interest payments," he added, but said the company "needs to maintain or improve its margins."
Moody's cut Rite Aid's ratings, which affect $4.1 billion of debt, one notch. It cut Rite Aid's secured bank credit line to "B2", its fifth highest of 11 "junk" grades, from "B1", and its senior unsecured notes to "Caa3", its ninth highest, from "Caa2".
It also cut Rite Aid's convertible subordinated notes to "C", its lowest grade, from "Ca". It said noteholders would likely recover "minimal" amounts of their principal in a "distress scenario". Moody's rating outlook is negative.
Rite Aid shares closed Wednesday on the New York Stock Exchange at $2.85, up 47 cents, or 19.7 percent, but fell to $2.55 in after-hours trading. The shares are down 34 percent in the last year. Moody's issued its downgrade after U.S. markets closed.
REDUCED CASH FLOW
Last month, Rite Aid reported a wider-than-expected fiscal third-quarter loss of $112.8 million, or 23 cents per share, and slashed its cash flow outlook for the rest of 2002.
Still, Rugen said "We expect $25 million of free cash flow, after servicing our debt and capital expenditures, for this fiscal year, which ends March 2, and $100 million to $150 million next fiscal year."
Moody's said "The ratings reflect Moody's concerns with respect to the long-term sustainability of the company's current capital structure, given our opinion that operating cash flow will not reliably cover cash interest payments going forward."
Moody's said Rite Aid's EBITDA margin, or the ratio of EBITDA to sales, fell last quarter to 2.8 percent from 2.9 percent a year earlier, following a few quarters of year-over-year improvement.
Novosel said Rite Aid's competitors have EBITDA margins about twice as high.
"(Rite Aid) management has been talking about raising EBITDA margins to 4 percent, but it has been a struggle," he said. "As a bond investor, I would be a little more cautious on the company than I had been a month ago, especially in light of the less-than-impressive results by CVS."
On Tuesday, CVS posted only its second quarterly loss ever. On the same day, Rite Aid said sales at stores open at least a year rose 8.3 percent from a year ago |
