New York, Feb. 27 - Rite Aid Corp. said it amended its $1.9 billion senior secured credit facility to allow it to issue senior secured notes as part of the settlement of a lawsuit against the company.
The credit facility amendment also resets covenants to give the Camp Hill, Pa. drugstore chain "more operating flexibility."
Rite Aid will issue the new notes as the final payment in a previously announced settlement of consolidated securities class action and derivative lawsuits. The company had the option to pay the $149.5 million balance due the plaintiffs in any combination of cash, common stock or notes. It has already paid the $45 million cash portion of the settlement with proceeds from insurance.
In a news release, Rite Aid chairman and chief executive officer Bob Miller said the company will issue notes since that option "is in the best interest of our shareholders."
The new notes will mature in 2006 and will initially pay a floating rate. Once the judgment entered by the U.S. District Court for the Eastern District of Pennsylvania approving the settlement of the shareholder suits becomes final, the interest rate will be reset to the level necessary to cause the notes to trade at par on that date.
The amendments to the company's credit facility - which is made up of a $1.4 billion term loan and a $500 million revolving credit facility, both due March 2005 - will increase the interest rate to Libor plus 375 basis points from Libor plus 350 basis points. Rite Aid said that rise will cost an additional $4 million a year in interest expense.
The increase in the interest rate will be achieved by replacing the previous fixed margin over either Libor or the base rate with a pricing grid, according to a filing with the Securities and Exchange Commission. With a rating lower than B+ from Standard & Poor's or B1 from Moody's Investors Service, interest will be at the new levels. At B+ and B1 or higher it will return to the old, lower level. The spread over the base rate is either 275 basis points or 250 basis points, depending similarly on the company's rating.
The new covenants limit capital expenditures, leverage, interest coverage and the fixed charge ratio.
For capital expenditures, Rite Aid is limited to $150 million for each year plus excess liquidity and any amounts carried forward for years ending up to Feb. 26, 2005. For Feb. 27, 2005 to June 27, 2005, the limit is $100 million.
The maximum leverage ratio, minimum interest coverage covenant and minimum fixed charge coverage ratios are set as follows:
| Period | Leverage | Interest coverage | Fixed charge coverage
|
| Nine months to Dec. 1, 2001 | 8.25 to 1.00 | 1.25 to 1.00 | 0.90 to 1.00
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| 12 months to March 2, 2002 | 8.40 to 1.00 | 1.20 to 1.00 | 0.90 to 1.00
|
| 12 months to May 31, 2002 | 9.50 to 1.00 | 1.15 to 1.00 | 0.90 to 1.00
|
| 12 months to Aug. 31, 2002 | 10.00 to 1.00 | 1.10 to 1.00 | 0.90 to 1.00
|
| 12 months to Nov. 30, 2002 | 9.50 to 1.00 | 1.20 to 1.00 | 0.90 to 1.00
|
| 12 months to March 1, 2003 | 8.30 to 1.00 | 1.35 to 1.00 | 1.00 to 1.00
|
| 12 months to May 31, 2003 | 7.90 to 1.00 | 1.45 to 1.00 | 1.00 to 1.00
|
| 12 months to Aug. 31, 2003 | 7.70 to 1.00 | 1.45 to 1.00 | 1.00 to 1.00
|
| 12 months to Nov. 30, 2003 | 7.50 to 1.00 | 1.60 to 1.00 | 1.05 to 1.00
|
| 12 months to Feb. 28, 2004 | 7.00 to 1.00 | 1.70 to 1.00 | 1.05 to 1.00
|
| 12 months to May 31, 2004 | 6.70 to 1.00 | 1.75 to 1.00 | 1.05 to 1.00
|
| 12 months to Aug. 31, 2004 | 6.50 to 1.00 | 1.90 to 1.00 | 1.10 to 1.00
|
| 12 months to Nov. 30, 2004 | 6.50 to 1.00 | 2.00 to 1.00 | 1.10 to 1.00
|
| 12 months to Feb. 26, 2005 | 6.00 to 1.00 | 2.00 to 1.00 | 1.10 to 1.00
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| 12 months to May 31, 2005 | 6.00 to 1.00 | 2.00 to 1.00 | 1.10 to 1.00
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| Rite Aid also paid a 25 basis points fee for the amendment.
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| Banks for Rite Aid's credit facility are Citicorp USA, Inc. as swingline bank, issuing bank administrative agent and collateral agent with JP Morgan Chase Bank, Credit Suisse First Boston and Fleet Retail Finance Inc. as syndication agents.
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