Rite Aid uses $715 million to decrease debt, plans further reduction

By Devika Patel

Knoxville, Tenn., Jan. 3 – Rite Aid Corp. has used the $715 million in proceeds from its ongoing sale of assets to Walgreens Boots Alliance Inc. to pay down debt and expects the company’s leverage to “substantially improve” further as the asset sale is completed.

The company also intends to refinance its revolver following completion of the sales.

“Today we have transferred 357 stores [to Walgreens Boots Alliance] and have received approximately $715 million in proceeds, which we have used to pay down debt,” chairman and chief executive officer John T. Standley said on the company’s third quarter earnings conference call after market close on Wednesday.

The company’s lead financial officer said that the company expects its leverage to “substantially improve” from the “significant net proceeds” of these sales.

“We will have significant net proceeds [from the asset sale to Walgreens] to allow us to de-lever the balance sheet and give us the flexibility to strategically invest in our business,” senior executive vice president and chief financial officer Darren Karst said on the call.

“We expect our leverage to substantially improve upon the ultimate completion of the [Walgreens Boots Alliance] asset sale,” Karst said.

The company’s management has not yet decided what it plans to do to further improve its debt-capital structure, but, at a bare minimum, it expects to refinance Rite Aid’s revolver.

“We are still working through our specific plans regarding our going-forward debt-capital structure, but at a minimum we do expect to refinance our revolving credit facility to both extend the maturity and to right-size the facility given our smaller store base,” Karst said.

“We are still evaluating the remainder of our debt-capital structure, which includes the impact of the application of asset sale proceeds, but that analysis is not yet finalized,” Karst said.

At the end of the third quarter, the company had about $1.7 billion of liquidity, with $1.9 billion of borrowings under its $3.7 billion revolving credit facility and $59 million of letters of credit.

Total debt, net of cash, was $6.7 billion at the end of the third quarter.

Third quarter adjusted EBITDA was $214.2 million, compared to the prior year third quarter adjusted EBITDA of $274.1 million.

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

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