Rite Aid to keep cutting debt; leverage of 5.3x expected by year-end

By Devika Patel

Knoxville, Tenn., Sept. 24 – Rite Aid Corp. reported its leverage ratio was 6.2x at the end of the last quarter, but the company plans to continue paying down debt and reducing leverage, so it expects the ratio will be 5.3x by the end of this year.

“Our debt balance, net of cash, was approximately $3.4 billion at the end of our second quarter and our leverage ratio was 6.2x adjusted EBITDA,” executive vice president and chief financial officer Matt Schroeder said on the company’s second quarter ended Aug. 29 earnings conference call on Thursday.

“We expect our leverage ratio to improve over the back half of the year.

“We expect our year-end leverage ratio to be approximately 5.3x,” he said.

“As an organization, we’ll continue our focus on freeing up working capital, reducing our debt and improving our leverage ratio,” president and chief executive officer Heyward Donigan said on the call.

The company exchanged $1.1 billion of notes in the quarter.

“During the quarter, we completed an exchange of $1.1 billion of our 6 1/8% notes due April 2023 for $850 million of 8% second lien secured notes due November of 2026 and $206 million of cash, which we funded with a draw on our revolver,” Schroeder said.

“As a result of this exchange, and the one we completed earlier in the year, we now have only $91 million left outstanding on our 6 1/8% notes due April 2023, which significantly improves our debt maturity profile.

“These exchanges, combined with our strong quarter-end liquidity of $1.35 billion, gives us the flexibility and runway to execute our strategic initiatives,” he said.

On June 25, the company said it has begun an exchange offer for up to $750 million principal amount of the 6 1/8% senior notes due 2023 (Cusip: 767754CH5) for newly issued 8% senior secured notes due 2026 plus cash.

Rite Aid solicited consents from holders of the old notes to adopt proposed amendments to the indenture governing the notes for a separate cash consent payment.

The purpose of the exchange offer was to improve the company’s maturity profile.

The exchange consideration was $760 of new notes plus $184 in cash. For notes tendered ahead of an early deadline, there was an additional $40 of new notes and $7.50 cash payment and $2.50 consent payment, for a total consideration of $800 of new notes and $194 in cash.

The effective result of this was that for each $1,000 of such old notes, $800 was exchanged for new notes at par and $200 was exchanged for cash at 97% of par.

The early deadline and consent solicitation expiry was 5 p.m. ET on July 9.

The exchange offer expired at 11:59 p.m. ET on July 23.

On July 24, Rite Aid announced final results of the exchange offer.

The company took in $9.427 million of additional tenders after the early deadline but prior to the expiry of the offer at 11:59 p.m. ET on July 23.

As of the early deadline on July 9, $1,053,255,000 of the old notes, representing 91.31% of the deal, had been validly tendered and not withdrawn.

The company issued $849,918,000 of new 8% secured notes due in November 2026 and made a cash payment to settle the offer.

The company increased the maximum amount of old notes that could be exchanged to $1.125 billion from $750 million and increased the exchange consideration for notes tendered after the early deadline to $800 principal amount of new notes and $191.50 in cash per old note from $760 in principal amount of new notes and $184 in cash per bond.

There was $1,153,490,000 of the notes outstanding at the outset of the offer on June 25. The consideration for old notes tendered after the early deadline was the same as that for old notes tendered by the early deadline other than it did not include the consent payment of $2.50 in cash. Notes tendered by the early deadline were eligible for a payment of $40 principal amount of new notes and $7.50 in cash per bond.

Consents representing $1,056,638,000 aggregate principal amount of old notes, or 91.6% of the old notes, were delivered.

The new notes are secured by substantially all of the company’s subsidiaries’ assets, including a first-priority lien on the notes priority collateral, and a second-priority lien on the ABL priority collateral, which, in each case include assets of PBM entities other than insurance entities and also secure the company’s existing credit facilities and the 2025 notes.

In conjunction with the exchange offer, the company solicited consents to some amendments that would modify the debt and lien covenants to provide additional secured debt capacity by creating exemptions for the $600 million of outstanding 2025 notes and the new notes.

The adoption of the proposed amendments required the consents of the holders of at least a majority of the outstanding principal amount of the old notes.

Rite Aid is a Camp Hill, Pa.-based drugstore chain.

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