Fitch Affirms Rite Aid's IDR at 'B-'; Rates New Bonds; Outlook Stable.NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed Rite Aid's Issuer Default Rating (IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) at 'B-' following the refinancing announcements on Oct. 19, 2009. The Rating Outlook is Stable.
Fitch has assigned 'BB-/RR1' ratings to Rite Aid's recently issued $270 million 10.25% senior second lien A Second lien financing is a form of financing secured on a second ranking basis by (more or less) the same security, which secures the first ranking financing. The first lien lenders and the second lien lenders agree that, in the event of a security enforcement or bankruptcy, the secured notes due 2019. Rite Aid also expects to increase the size of its $1 billion revolving credit Revolving Credit
A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility by $175 million to $1.175 billion and increase borrowings under its $525 million term loan due June 2015 by $125 million to $650 million. The $570 million in gross proceeds will be used to refinance the off balance sheet $345 million first lien accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying securitization Securitization
The process of creating a financial instrument by combining other financial assets and then marketing them to investors.
Mortgage backed securities are a perfect example of securitization.
May also be spelled as "securitisation. facility, which was due to mature in January 2010, and the $225 million second priority accounts receivable securitization term loan due to mature in September 2010, addressing the only major remaining debt maturities over the next three years. The recent issuances follow the June refinancings, when Rite Aid put in place a new $1 billion credit facility, issued $525 million in term loans and $410 million in senior first lien secured high yield notes to replace its existing $1.75 billion credit facility and a $145 million term loan that were due to mature in September 2010.
Fitch has also affirmed the following ratings:
--Secured revolving credit facility and term loans at 'BB-/RR1';
--Second lien senior secured notes at 'BB-/RR1';
--Guaranteed senior unsecured notes at 'CCC/RR5';
--Non-guaranteed senior unsecured notes at 'CC/RR6'.
The Stable Outlook reflects Rite Aid's completion of 2010 refinancing activities, thus near term liquidity concerns are alleviated. The ratings continue to consider Rite Aid's significant high leverage and limited capital for investment; operating statistics that significantly trail its two major competitors; and the ongoing risk of improving operations at the acquired Brooks Eckerd stores. In the near term, a decline in front-end same store sales Same Store Sales
A statistic used in retail industry analysis. It compares sales of stores that have been open for a year or more.
This statistic allows investors to determine what portion of new sales has come from sales growth and what portion from the opening of could stall operating improvement at both core Rite Aid and Brooks Eckerd stores. The ratings also reflect Rite Aid's strong market share position as the third largest U.S. drug retailer and management's concerted efforts to improve the productivity of its store base and manage liquidity through working capital reductions and other cost cutting initiatives.
With the refinancings successfully completed, Fitch anticipates management can turn its full focus on improving core operations, and rating movements will largely depend on Rite Aid's top line and profitability. Rite Aid's operating metrics significantly lag those of its large and well capitalized competitors, CVS (1) (Concurrent Versions System) A version control system for Unix that was initially developed as a series of shell scripts in the mid-1980s. CVS maintains the changes between one source code version and another and stores all the changes in one file. Caremark and Walgreen. The latter two retailers have been gaining share through organic growth and by folding in regional retailers, in the case of CVS Caremark in many of Rite Aid's markets. If Rite Aid is unable to improve average weekly prescriptions per store (which have been flat at around 1,150 for the last few years versus Walgreen at 1,835 and CVS Caremark at 1,630 in their most current fiscal years) or gain traction at the Brooks Eckerd stores acquired in June 2007, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become margins are likely to remain pressured on weak top line growth and market share losses. Rite Aid's EBITDA margin at 3.8% (excluding non-cash and merger related expenses) for the latest 12 months ended Aug. 29, 2009 is significantly below its two leading competitors' margins in the range of 7% to 8.5%.
In the near term, Fitch expects anemic pharmacy same store sales and a decline in higher margin front-end same store sales could pressure gross margins, as seen in its second quarter results when adjusted FIFO (First In First Out) A storage method that retrieves the item stored for the longest time. Contrast with LIFO. See traffic engineering methods.
FIFO - first-in first-out gross margin declined 70 bp year over year with a front-end same store decline of 4.9%. As a result, free cash flow is expected to be in the $50-$100 million range in FY2010 (takes into account modest improvement in working capital) and adjusted debt/EBITDAR for FY2010 and FY2011 is expected to remain at or be slightly above the 7.4x reported for FY2009. Rite Aid's ability to appropriately invest in its stores given its current free cash flow levels and indebtedness remain a concern as Fitch views the projected $250 million in capital spending capital spending
Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. for FY2010 below levels required to remain competitive.
The issue ratings shown above are derived from the IDR and the relevant Recovery Rating. The revolving credit facility due September 2012, term loans and the $410 million senior secured notes due June 2016 have a first lien on the company's cash, accounts receivable, investment property, inventory and scrip lists, and are guaranteed by Rite Aid's subsidiaries giving them an outstanding recovery (91%-100%). With the paydown of the off-balance sheet securitization facilities, a total of $1 billion in receivables ($621 million on-balance sheet and $400 million off-balance sheet that were backing the A/R facility outstandings at the end of the second quarter) will now become part of the general collateral pool that will secure the first and second lien notes. Rite Aid's senior secured notes that have a second lien on the same collateral and are guaranteed by Rite Aid's subsidiaries are also expected to have outstanding recovery prospects. Given the amount of secured debt in the company's capital structure, the unsecured guaranteed notes are assumed to have below average recovery prospects (11%-30%) and unsecured notes and convertible bonds are assumed to have poor recovery prospects (0%-10%) in a distressed scenario. Fitch's recovery analysis assumes a liquidation value Liquidation value
Net amount that could be realized by selling the assets of a firm after paying the debt. under a distressed scenario of $6.2 billion on inventory, receivables, owned real estate and prescription files.
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