Rite Aid jumps on favorable numbers; Cablevison rises on spectrum license sale

By Paul Deckelman and Paul A. Harris

New York, Dec. 19 - Rite Aid Corp debt and shares were sharply higher on Thursday, after the drugstore chain operator announced better third-quarter numbers. Also on the upside was Cablevision Corp.'s bond-issuing affiliate, CSC Holdings Inc., after its parent announced the sale of radio-frequency spectrum licenses to Verizon Communications.

Camp Hill, Pa.-based Rite Aid "was flying today." a trader said. "It was definitely the biggest gainer." He quoted Rite Aid's 7 5/8% notes due 2005 at 92 bid/93 offered, 10 points over Wednesday's closing levels, while its 7 1/8% notes due 2007 were also seen up 10 points, at 83.5 bid/84.5 offered.

"You can't find an offering" on Rite Aid paper, another trader said. "Only later in the day were you actually able to see right-hand [i.e. offered] sides."

He continued that "everything is moving north" on Rite Aid, "but with not a lot of offerings."

Rite Aid announced that during the fiscal third quarter ended Nov. 30, it lost $16.4 million (five cents a share) on revenues of $3.9 billion, versus a yawning year-earlier quarterly loss of $112.8 million (23 cents a share), on revenues of $3.7 billion.

The nickel-per-share loss was better than the nine-cent per share deficit that analysts had been predicting.

Rite-Aid also said that its gross product margin for the quarter rose to 23.3% from 21.9% as year earlier.

From a bondholders' perspective, Rite Aid's third-quarter EBITDA rose to $161.1 million, or 4.2% of sales, well up from $77.5 million (2.1%of sales) in the year-ago quarter.

The company said that its EBITDA figure - which also includes earnings before LIFO charges, gains from asset disposals and non-operating charges in addition to the usual interest, taxes, depreciation and amortization - beat the high end of its previously released guidance for the quarter.

Rite Aid, which saw same-store sales (the key measure of a retailer's performance) rise 6.7% in the quarter from a year ago, forecast that same- store sales for the fourth quarter of fiscal year 2003, which ends on March 1, 2003, will increase 6% to 7% from the fourth quarter of the prior year, while fourth-quarter EBITDA is expected to be in the $160 million-to-$170 million range - well up from $143.5 million of EBITDA in the previous year's fourth quarter.

For the whole fiscal year, Rite Aid raised its EBITDA guidance to a range of $605 million to $615 million; the previous range was $565 million to $600 million.

For fiscal 2004, which will end on Feb. 28, 2004, Rite Aid is projecting EBITDA of $675 million to $725, on sales of $16.6 billion to $16.8 billion. Same store sales should improve 6%-to- 7% over fiscal 2003A's levels. The company also said it expects to generate $200 million to $250 million of free cash flow for fiscal 2004.

The pharmacy chain's sharply narrowed third-quarter loss and optimistic guidance for the fourth quarter, 2003 and 2004 was the right medicine for Rite Aid's shares, which jumped 46 cents (21.10%) to $2.64 on New York Stock Exchange volume of 18. 4 million shares, more than nine times the norm.

Another high flier during Thursday's generally light secondary dealings was Cablevision, on the news that Verizon Wireless will buy 50 radio-frequency spectrum licenses from Cablevision affiliate Northcoast Communications for $750 million in cash. Cablevision's share of the money comes to $635 million, which will be used to pay down bank debt.

Cablevision's 7 5/8% notes due 2011 were two points better on the news, at 93.5 bid/94.5 offered, while its 8 1/8% notes due 2009 were 2½ points improved, at 95.5 bid/96.5 offered.

A trader saw the company's 9 7/8% notes due 2013 as having improved from 94 bid/95 offered to bid levels around 96, with no offerings after the news.

"Everything was better on Cablevision," he said, noting that the Long Island, N.Y.-based cable TV system operator's bonds had been languishing in the 60s "just three or four months ago, back when they had their funding shortfall and all of that. They've got some assets - and when it looked as though the sky was falling, everyone forgot that they had some decent assets" that could be sold to bring down debt and improve liquidity.

"Now that they're talking about selling, everybody feels more comfortable that they're getting some decent levels for their stuff, and no fire sales are going on."

On the downside, the trader saw Radiologix Inc.'s normally little-traded debt "falling out of bed" after the Dallas-based diagnostic imaging services provider warned that it it expects fourth-quarter earnings of at least 3 cents a share - versus analysts' forecasts of profits in the 20-cent-per share range. It cited volume weakness and greater competition as the key factors behind the lessened expectations.

For the full fiscal year, it expects profits about 57 cents per share, well down from the 75 cents per share the company itself had previously projected, which is also what the analysts have been looking for.

Radiologix stock slid $2.94 (59.51%) to $2, on American Stock Exchange volume of 2.8 million shares, about 14 times the usual.

On the bond side, the trader saw its "very illiquid" 10½% notes due 2008 offered at 82 with no bids, down from levels in the mid-90s a couple of days ago.

"They just sank like a stone," he said.

A trader saw United Air Lines bonds "continuing to get weaker," with its 10.67% notes due 2004 and other unsecured debt dropping back to around the 10-11 bid area from prior levels around 12-13 right after the Number-Two U.S. air carrier filed its Chapter 11 petition.

Back on the upside, Dole Foods Co. Inc.'s 6 3/8% notes due 2005 were a 1½ points better, at par bid/101 offered, but the trader saw its 7¼% notes due 2009 down about the same amount, to close at 95.5 bid/96.5 offered. The Westlake Village, Calif.-based fruit and vegetable company announced plans for company chairman David H. Murdock to take Dole private by buying the 76% of the company he doesn't already own for $33.50 per share. Dole said that it anticipated redeeming or retiring the 6 3/8% notes following the buyout, but leaving the 7¼% paper outstanding (see "Tenders and Redemptions" elsewhere in this issue for more).

With a paucity of news in the primary market during Thursday's session, sources who spoke with Prospect News reported hearing the drums of war as U.S. Secretary of State Colin Powell declared the Bush administration's stance that Iraq is in "material breach" of United Nations resolutions concerning the Arabic nation's disclosure of its inventory of weapons of mass destruction.

"There is nothing happening," declared one sell-side official during Thursday's session. "We're done. Call it quits. The year's over.

"Go home," this official advised. "There's no more to write."

When Prospect News responded that this was not an option, the official conceded that there had been some activity in the new notes of Sanmina-SCI Corp. On Wednesday the San Jose, Calif. electronics firm massively upsized its offering to $750 million from $450 million and priced the eight-year senior secured notes (Ba2/BB-) at par to yield 10 3/8%, via Goldman Sachs & Co.

While not specifying levels, the official said that the new Sanmina notes, which were said to have broken into the aftermarket at par shortly after pricing Wednesday, were seen trading a little better than par on Thursday. However this source attributed the move to the sheer size of the deal.

Later during Thursday's session another sell-side official, also offering no levels, said that the new Sanmina paper had been seen trading "a little better" than par in the secondary market.

Also on Thursday the market heard that one of the names likely to come into the new issuance market in the new year is Dole Food Co.

According to a press release, DHM Acquisition Co., which is wholly owned by company chairman David H. Murdock, will use up to $450 million of high yield bonds in conjunction with up to $1.15 billion of senior secured credit facilities to fund the buyout of Dole. Deutsche Bank, Scotia Capital and Bank of America are the leads on the bank deal.

One informed source told Prospect News that the Westlake Village, Calif. producer and marketer of fresh fruit, vegetables and fresh-cut flowers, will be coming to the markets during the first quarter of 2003.

Meanwhile sources on the sell-side told Prospect News on Thursday that with the year 2002 swiftly coming to a close in the capital markets the year ahead will come laced with several notable imponderables.

The biggest, these sources concurred, is the prospect of war. Mid-afternoon on Thursday U.S. Secretary of State Colin Powell announced that the Bush administration considers Iraq to be in "material breach" of United Nations resolutions by which it is mandated to disclose the particulars of its programs and inventories of weapons of mass destruction.

While Powell said that the breach would not necessarily "trigger" a U.S.-led war against Iraq, high yield sell-side sources who spoke Thursday with Prospect News talked as though the writing may already be on the wall.

"We have the prospect of war coming up," said one official. "You have seen in the last few days the prices of gold and oil running themselves up in anticipation of that.

"I'd like to think that the positive trends in the equity market will continue," this official added. "And I think that will in turn drive the positive funds flows into the mutual funds, which will drive new issuance in high yield.

"But it's going to be pretty volatile out there."

On a more positive note this official said that the Bush administration's proposed economic stimulus package, the centerpiece of which is a broad tax-cut measure, will help all the capital markets.

Another official, speaking on the telephone shortly after Powell declared Iraq to be in material breach of U.N. resolutions, also mentioned the prospect of war during the early part of 2002, and expressed the opinion that a conflagration in Iraq could proceed along the same lines as the successfully concluded U.S.-led invasion of Afghanistan, which displaced the Taliban government in 2001.

This official went on to state, however, that absent war there was plenty of financial news (not all of it good by any means) that investment banks and high-yield issuers will be focused on in the waning days of 2002.

"In this type of economic environment some of the credits we've been expecting and that have not shown up are struggling, and people on a weekly basis come up with a new financial structure and start pitching to see if they can get the thing done.

"All of the names on the shadow calendar and anything that got postponed earlier in the year will likely try to come back early in 2003, provided the markets hang in there.

"It all depends on the equity markets," this sell-side source specified. "If they stay flat or improve we're alright. If they continue to fall - as they have for almost 3½ weeks now - that's going to start having an affect on the high yield market."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.