Moody's affirms Rite Aid

Moody's Investors Service said it affirmed the secured notes and unsecured notes of Rite Aid Corp. at B2 and Caa1, respectively.

Ratings affirmed include the $660 million second-lien senior secured notes (comprised of two separate issues) at B2, $1.5 billion of senior notes (comprised of nine separate issues) at Caa1, $250 million of 4.75% convertible notes due 2006 at Caa1, senior implied rating of B2, and the unsecured issuer rating of Caa1. The speculative grade liquidity rating is SGL-2.

The affirmation follows replacement of the prior $1.85 billion bank loan with a new $1.4 billion bank facility and $400 million accounts receivable securitization.

Moody's does not rate the new $1.4 billion first-lien secured bank facility (comprised of a $950 million revolver and $450 million term loan B).

Relative to the prior bank loan, the new debt is cheaper and provides greater flexibility in debt prepayment, the agency said. The company's weak operations, high financial leverage, and limited availability of alternate liquidity compared to its higher rated peers constrain the ratings. However, the progress at implementing a sustainable long-term capital structure and Moody's confidence in achievement of the revenue and cash flow objectives required to turn around the company's performance benefit the ratings.

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