Moody's rates Rite Aid notes Caa2, upgrades liquidity rating

Moody's Investors Service assigned a Caa2 rating to Rite Aid Corp.'s new $150 million 10-year senior unsecured notes, upgraded its speculative-grade liquidity rating to SGL-2 and confirmed its other ratings including its $1.85 billion pending new first lien secured bank facility at B1, $1.87 billion old first lien secured bank facility at B1, $660 million second lien senior secured notes at B2 and $1.78 billion of senior notes at Caa2. The outlook is stable.

Moody's said the liquidity rating recognizes that the company currently has significant revolving credit facility availability plus more than $350 million in cash.

The fundamental ratings recognize the recent momentum that the company has developed in improving liquidity and year-over-year cash flow, management's consistent track record at achieving operational and financial targets, and the steady progress at resolving the outstanding civil and criminal issues, Moody's said.

As the third largest drug store chain and retailer of about 6% of the prescription drugs dispensed in the U.S., potential scale advantages in purchasing, marketing, and information technology and the importance of Rite Aid in the nation's health care system also benefit Moody's perception of the company.

However, the ratings continue to reflect the importance of further operating improvement since leverage remains very high and fixed charge coverage remains low, the weak performance at a significant proportion of stores, and the long-term loss of retail prescription market share.

The continuing performance differential between the company and its higher rated peers Walgreen (senior unsecured Aa3) and CVS (senior unsecured A2), as well as Moody's belief that store repair and maintenance should eventually equal depreciation, also heighten the operating challenges that confront Rite Aid.

The company's operating and debt protection measures have significantly improved over the last four quarters, but leverage is still high and fixed charge coverage is still low, Moody's said. For the fiscal year ending March 1, 2003, lease adjusted leverage exceeded 7 times and fixed charge coverage was only 0.9 times. EBITDA margin for the year ending March 1, 2003 improved to 3.8% compared to 3.0% in the prior fiscal year. Even with an increasing proportion of sales coming from lower margin prescription drugs, gross margin has modestly improved to 23.4% from 22.6% as average unit volume continues growing. However, Rite Aid must improve faster than the average of the rapidly growing drugstore industry to remain relevant to important constituencies such as third-party health care payers.

S&P confirms American Skiing

Standard & Poor's confirmed American Skiing Inc. including its $120 million 12% senior subordinated notes due 2006 at CC and removed it from CreditWatch negative. The outlook is negative.

S&P said the confirmation is response to improvements in key credit measures and liquidity.

American Skiing's operating performance has benefited from increased skier visits to its eastern ski resorts, due to above-average snowfall in the region, S&P said.

Also, the new resort credit facility extends amortization schedules, and provides some additional borrowing flexibility.

As a result, the company is no longer reliant on asset sales to meet its cash requirements.

However, financial risk remains high with very tight liquidity, a heavy debt burden, volatile seasonal and weather-dependent cash flow, and significant cash flow deficits due to high working capital and capital expenditure requirements. In addition, third fiscal quarter results are likely to reflect the negative impact of the Iraqi conflict on skier trends toward the end of the ski season, S&P said.

For the 12 months ended Jan. 26, 2003, total debt to EBITDA remained high at 8.4x, but improved from 9.9x a year ago. Over the same period, EBITDA coverage of interest expense improved to 1.2x from 0.8x, S&P said.

S&P rates SpectraSite notes CCC+

Standard & Poor's a CCC+ rating to SpectraSite Inc.'s planned $150 million senior notes due 2010 and confirmed its existing ratings including the B+ secured bank loan rating on wholly owned operating subsidiary SpectraSite Communications Inc. The outlook is stable.

S&P said the unsecured debt issue is two notches lower than the corporate credit rating, reflecting the significant concentration of secured bank debt in the capital structure, at approximately $560 million, pro forma for pay-down, with proceeds from this new unsecured debt issue.

The tower industry has been plagued in the past few years by softened tower demand from major wireless carriers, S&P said. This has been particularly problematic because tower companies leveraged their balance sheets in anticipation of rapid growth in tower co-locations, with concomitant cash flow acceleration sufficient to meaningfully cover debt levels in a relatively limited time. However, with delays by many wireless carriers in their expansion of coverage and capacity, the tower sector has been under significant financial pressures.

The B corporate credit rating reflects the lower relative debt levels of SpectraSite compared with its rated peers after its emergence from bankruptcy. As a result, all of the other tower operators are rated B- or lower.

A favorable risk factor is that wireless companies may have few feasible alternatives to using SpectraSite's towers, S&P said. While an existing tenant might choose to build its own towers (an expensive undertaking), or lease from another company, both alternatives could involve major system reengineering.

Nevertheless, with the company's average remaining lease contract life totaling only about three and one-half years before optional renewals, it faces the potential for some meaningful falloff in business in a relatively short time, S&P said. Moreover, prospects for co-location growth will continue to be tied to spending by the wireless carriers in the face of relatively constrained capital markets and continued slowing in subscriber growth. In this environment, the company's debt to EBITDA is expected to be about 4.9x for 2003 (about 5.5x on an operating lease-adjusted basis).

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