Rite Aid plans assumption of Jean Coutu's 8½% notes with subsidiary guarantees

By Jennifer Chiou

New York, Sept. 18 - Rite Aid Corp. said that The Jean Coutu Group (PJC), Inc.'s 8½% senior subordinated notes will continue to be guaranteed by the Jean Coutu entities that Rite Aid acquires in its purchase of the holding company for Jean Coutu's U.S. operations.

The notes will also be guaranteed by Rite Aid subsidiaries on a senior subordinated basis as a result of the non-merger transaction, according to a question and answer filing with the Securities and Exchange Commission.

Rite Aid's acquisition of the Eckerd and Brooks stores will not constitute a change of control under the 8½% notes' indenture, the filing said.

On Aug. 24, Rite Aid announced that it plans to use new term loan debt and six-year notes to help fund its acquisition of Jean Coutu Group USA Inc. Citigroup provided the financing commitment.

Rite Aid previously said that it will need about $2.2 billion in funding, not including the assumption of $850 million of Jean Coutu Group's 8½% notes, to pay the cash portion and address its fiscal 2007 debt maturities.

If the 8½% notes are not assumed, the cash portion paid in the transaction would increase to $2.3 billion from $1.45 billion and Rite Aid would issue additional debt securities to fund the increased cash consideration.

According to Monday's filing, though the transaction involves the sale of all or substantially all of Jean Coutu's assets, the limitations on asset sales under the note indenture does not apply.

Rite Aid's 9¼% senior notes due 2013 will also become guaranteed as a result of the transaction, but Rite Aid's 6 1/8% fixed-rate senior notes due 2008, 6 7/8% senior debentures due 2013, 7.7% notes due 2027 and 6 7/8% fixed-rate senior notes due 2028, which are not currently guaranteed, will not become guaranteed as a result of the transaction and Rite Aid's planned financing.

The 8½% notes and the related guarantees will be subordinated to the senior debt of Rite Aid and its subsidiaries.

In order for Rite Aid to assume the 8½% notes, conditions include the satisfaction of a minimum consolidated fixed-charge coverage ratio. In the case that Rite Aid cannot assume the 8½% notes, the company said it has financing commitments that would replace the notes.

Jean Coutu will be released from any obligations related to the 8½% notes if Rite Aid assumes them.

Also, Jean Coutu is seeking certain technical amendments to the indenture without bondholder consent, according to the filing.

Rite Aid previously said it plans to draw on its $1.75 billion existing revolver and use cash on hand for acquisition financing as well.

Under the transaction Longueuil, Quebec-based Jean Coutu Group Inc. will receive $1.45 billion in cash, subject to customary working capital adjustments, and 250 million shares of Rite Aid common stock, giving it a 32% common equity interest and 30.2% of the voting power in the expanded Rite Aid.

The Jean Coutu Group USA includes 1,858 drugstores, of which 337 are Brooks stores and 1,521 are Eckerd stores, and six distribution centers.

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

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