Moody's: Rite Aid outlook negative

Moody's Investors Service said it assigned a Caa2 (LGD6, 95%) rating to Rite Aid Corp.'s new $158 million 8.5% convertible notes due 2015 and lowered the speculative-grade liquidity rating to SGL-4 from SGL-3.

The remaining ratings were affirmed, including the corporate family and probability-of-default ratings at B3, first-lien bank facilities at Ba3 (LGD2, 22%), second-lien secured notes at B3 (LGD3, 48%), guaranteed senior notes at Caa1 (LGD5, 76%) and senior notes and debentures at Caa2 (LGD6, 95%).

The outlook was revised to negative from stable.

Proceeds from the new convertibles will be used to redeem the company's $150 million 6 1/8% senior notes due December 2008.

The agency said the ratings reflect the weak performance of the Rite Aid and Eckerd stores compared to best-in-class drugstore operators along with the company's weak credit metrics and its high level of fixed charges relative to EBITDA.

Positive rating consideration is given to the company's nationwide geographic diversification and expectation that sales of prescription pharmaceuticals will continue to increase at a solid pace, Moody's said.

The negative outlook acknowledges the continued challenge Rite Aid faces to meaningfully improve the sales and margin performance at the acquired Eckerd stores, the agency said, and the downgrade to SGL-4 is based on Moody's expectation that Rite Aid's overall liquidity profile will likely result in the company remaining a net borrower under its revolver over the next 12 months.

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