Rite Aid pays off notes, term loans, cuts debt to about $3.4 billion

By Devika Patel

Knoxville, Tenn., Sept. 27 – Rite Aid Corp. used the proceeds from the sale of some of its assets to Walgreens Boots Alliance to pay down a large amount of debt, with almost no maturities now due until 2023.

“As of March 27, we completed the sale and transfer of all 1,932 stores to [Walgreens] and received cash proceeds totaling nearly $4.2 billion,” senior executive vice president and chief financial officer Darren Karst said on the company’s second quarter ended Sept. 1 earnings conference call on Thursday.

“After the end of the second quarter, on Sept. 13, we completed the sale of our Dayville, [Conn.,] distribution center to [Walgreens] and received an additional $60 million of proceeds that were used to further reduce debt.

“These amounts do not include about $160 million that will be received after we sell the two remaining distribution centers to [Walgreens],” Karst said.

Proceeds were used to pay off two series of notes, term loans and to reduce the outstanding amounts on another series of notes.

“The proceeds we have received to date have been used to pay off all of our $970 million of term loans, our 9¼% notes, which we redeemed on April 12, our 6.75% notes, which we redeemed on June 25 and we reduced our 6 1/8% notes by $46 million,” Karst said.

“We’ve also reduced our revolving credit commitments from $3.7 billion to $2.7 billion to reflect our reduced borrowing requirements,” Karst said.

The company now has a “very manageable” capital structure.

“The result of all this debt reduction is that we now have a very manageable capital structure, with none of our debt maturing prior to 2023 other than our revolving credit facility,” Karst said.

The company plans to refinance its revolver.

“We are currently planning to refinance our revolver before the end of fiscal 2019 and expect that maturity to be pushed out to at least 2023,” Karst said.

The paydown of debt to date has given the company a debt balance of about $3.4 billion, net of cash, as of quarter-end and a leverage ratio of about 5.4x trailing proforma EBITDA.

The company has over $1.3 billion of liquidity.

“Our liquidity today is strong,” Karst said.

The debt reduction has improved the company’s balance sheet.

“We have significantly reduced our debt and improved our balance sheet,” chairman and chief executive officer John T. Standley said on the call.

Second quarter adjusted EBITDA was $148.6 million, compared to $136.9 million for the same period last year.

Redemption of notes

On March 13, Rite Aid issued a notice of redemption for all of its 9¼% senior notes due 2020.

The notes were redeemed at par plus accrued interest up to but excluding the redemption date of April 12.

On April 19 the company began an offer to purchase for cash up to $700 million of its 6¾% senior notes due 2021 and 6 1/8% senior notes due 2023.

The company bought back the notes at par plus accrued interest up to the payment date of May 21.

On May 22, Rite Aid said it received and accepted for purchase tenders for $1.36 million, or 0.17%, of the 6¾% notes and $4,759,000, or 0.27%, of the 6 1/8% notes.

On May 25, the company issued a notice of redemption for all $805,169,000 of the outstanding 6¾% notes, which were redeemed on June 25 at 101.688 plus accrued interest to but excluding the redemption date.

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

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