Rite Aid cuts leverage ratio, says further refinancing deals likely

By Paul Deckelman

New York, April 12 - Rite Aid Corp. has "just over $1 billion of liquidity," the big drugstore chain operator's chief financial officer said Thursday - and he raised the possibility that the company might return to the capital markets at some point in the near future to deal with upcoming debt maturities.

"As we've said in the past, and as we did back in February, we're always looking at the market and looking for ways to continue to give us some additional flexibility," Frank Vitrano told an analyst during the question-and-answer portion of the company's conference call for the 2012 fiscal fourth quarter and full year. Vitrano also is senior executive vice president and chief accounting officer for Camp Hill, Pa.-based Rite Aid.

Vitrano said that Rite Aid does "have some tranches that come due in [2015] and beyond, so you shouldn't be surprised if, at some point, we come back to the market looking to do additional refinancing."

A big deal in February

Just before the end of the fiscal fourth quarter on March 3, Rite Aid came to market with a quickly shopped $481 million issue of eight-year senior guaranteed notes (Caa3/CCC/CCC). Those bonds priced at par on Feb. 14 to yield 9¼%, and proceeds were slated to be used to fund a concurrent tender offer for its 8 5/8% senior guaranteed notes due 2015.

Rite Aid began that tender offer for the $459 million of outstanding notes, and the solicitation of noteholder consents to proposed indenture amendments, on Feb. 14, and it concluded on March 13. Holders of $404.8 million of the 8 5/8% notes, or 88.2% of the outstanding amount, tendered their notes and consented to the indenture changes by the Feb. 24 consent payment deadline. Rite Aid paid them a total purchase price of $1,026.25 for each $1,000 principal amount of notes tendered, including a $30.00 per $1,000 principal amount consent fee, plus accrued interest.

No other notes were tendered after that, and Rite Aid called the remaining $54.2 million principal amount of the notes. It redeemed them on March 28 at 102.156% of par plus accrued interest.

EBITDA gain cuts leverage

As of the end of the fiscal fourth quarter, Rite Aid's total debt had increased by more than $100 million to $6.33 billion from $6.22 billion on the books in the year-earlier period.

However, aided by better financial performance - the company's adjusted EBITDA for the latest period grew to $274.3 million from $215.2 million a year earlier - its invested cash balance grew to $58.7 million from just $1.6 million. That brought its net debt figure down to $6.27 billion, just $51 million above its year-earlier $6.22 billion level. Vitrano attributed the increased debt to higher borrowings against its revolving credit line as a result of the company's greater inventory position.

With the gains in adjusted EBITDA more than offsetting the net debt increase, Vitrano said that the company's leverage ratio - defined as net debt versus trailing last-12-month adjusted EBITDA - improved to 6.7 times from 7.2 times a year earlier.

Liquidity currently hovers just above the $1 billion mark, Vitrano said. When the fiscal fourth quarter ended in early March, liquidity totaled $913 million, mostly in revolver availability. Rite Aid had $136 million of revolver borrowings outstanding under its $1.18 billion senior secured credit facility, with $128 million of outstanding letters of credit.

No shortage of debt

According to Rite Aid's most recent 10-Q quarterly filing with the Securities and Exchange Commission, which was filed after the end of the fiscal third quarter last November, the company's capital structure also included $1.38 billion of term loan debt, including $1.04 billion due in June 2014

It included various issues of senior secured bonds totaling $2.27 billion, including $405.1 million of 9¾% senior lien notes due June 2016.

Apart from February's new 9¼% bond issue, Rite Aid had $1.20 billion of guaranteed but unsecured bonds, including $402.1 million of 9 3/8% notes due December 2015

And it had $673 million of non-guaranteed unsecured bonds, including $6 million of 9¼% notes due June 2012 and $180.2 million of 6 7/8% senior debentures due August 2012.

There was also $64.1 million of 8½% convertible notes due in May 2015 outstanding.

Vitrano further said that the company generated free cash flow of $22 million for the year, "which was in line with our expectations."

In looking ahead at 2013, the CFO said, "We expect to be free cash flow positive for the year."

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