Fitch rates Rite Aid notes BB-, CCC+, cuts Jean Coutu note to CCC-

Fitch Ratings said it assigned a BB-/RR1 rating to Rite Aid Corp.'s new $300 million senior secured notes due 2017 and a CCC+/RR5 rating to its new $500 million senior unsecured notes due 2015.

The agency also affirmed the company's B- issuer default rating, BB-/RR1 $1.75 billion bank credit facility, BB-/RR1 $558 million second-lien senior secured notes and CCC+/RR5 $906 million senior unsecured notes and removed them from Rating Watch negative.

In addition, The Jean Coutu Group Inc.'s $850 million 8½% senior subordinated notes were downgraded to CCC-/RR6 from CCC+/RR5 and removed from Rating Watch negative.

The outlook is stable.

The proceeds of the new notes will be used to redeem the company's $300 million 9½% senior secured notes due 2011 and replenish the $1.75 billion revolving credit facility that was used to retire the company's $250 million 4¾% convertible notes in December and $185 million 7 1/8% senior unsecured notes in January.

Rite Aid is slated to acquire 1,858 drug stores from The Jean Coutu Group for $3.4 billion, including $1.45 billion in cash, 250 million newly issued Rite Aid common shares and the assumption of $850 million senior subordinated notes. If the company receives FTC approval and the transaction is completed as currently anticipated, Fitch said it expects to assign a BB-/RR5 to Rite Aid's new $1.25 billion term loans, which will be used to fund the acquisition.

The ratings consider the risk associated with integrating 1,858 Brooks and Eckerd stores with Rite Aid's existing store base and improving operations at these stores, the higher leverage of about 7x following the completion of the transaction, operating statistics that trail those of competitors and the intense competition in the drug retailing sector, Fitch said.

The ratings also reflect Rite Aid's operating strategy to focus on its store base and in-store service levels, the positive demographics of the drug retailing industry and the benefits from leveraging a larger store base, the agency said.

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