Moody's rates Rite Aid loan B3

Moody's Investors Service said it assigned a B3 (LGD2, 25%) rating to Rite Aid Corp.'s proposed $343 million tranche five senior secured first-lien term loan due 2018 and affirmed its corporate family and probability of default ratings at Caa2, first-lien bank credit facilities and first-lien senior secured notes at B3 (LGD2), second-lien secured notes at Caa2 (LGD4), guaranteed senior notes at Caa3 (LGD5, 80%), senior notes and debentures at Ca (LGD6, 95%) and speculative grade liquidity rating at SGL-3.

The loss-given-default rate was revised to 25% from 26% for the first-lien credit facilities and notes and to 55% from 57% for the second-lien notes.

The outlook is stable.

The proceeds of the proposed tranche five term loan will be used to repay the $343 million tranche three term loan due 2014.

The agency said Rite Aid's Caa2 corporate family rating reflects its highly leveraged capital structure and heavy interest burden, which limits its ability to invest in capital expenditures and working capital to the same extent as its competitors. Moody's thinks this places the company at a competitive disadvantage and that it will therefore be challenging for Rite Aid to meaningfully improve its earnings, limiting its ability to meaningfully deleverage and resulting in a heightened probability that it will need to restructure over the medium term.

Positive ratings consideration is given to Rite Aid's adequate liquidity, large revenue base and the solid fundamentals of the prescription drug industry, the agency said.

For the 12 months ended Nov. 27, the debt-to-EBITDA ratio was 9x.

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