Fitch Ratings has assigned a rating of 'CCC/RR5' to Rite Aid
Corporation's (Rite Aid) $421 million of 9.25% guaranteed senior
unsecured notes due March 15, 2020. The notes are being offered as
additional notes under an existing indenture pursuant to which Rite Aid
previously issued $481 million 9.25% senior notes in February 2012.
Between the two bond issues, Rite Aid has addressed its 2015 debt
maturities of $459 million 8.625% and $405 million 9.375% guaranteed
senior unsecured notes due 2015.
Rite Aid still has $1,044 million of first lien secured term loans due
June 2014 and a combination of $880 million of first and second lien
secured notes due mid-2016. Given the quality of its collateral, Fitch
expects Rite Aid to be able to address these maturities in a timely
fashion (Fitch expects the 2014 maturities will be addressed in early
2013), barring any significant deterioration in its business trends or
disruption in the credit markets.
RATINGS AFFIRMED; OUTLOOK TO STABLE: As a result of its recent debt
refinancing activity as well as the stabilization in its operating
trends, Fitch has affirmed its ratings on Rite Aid and revised the
Rating Outlook to Stable from Negative. A full rating list is shown at
the end of the press release.
The ratings continue to reflect the following:
--Rite Aid's high leverage, limited capital for investment and operating
statistics that significantly trail its two major competitors;
--Strong market share position as the third largest U.S. drug retailer;
--Management's concerted efforts to improve the productivity of its
store base and manage liquidity through refinancing activity over the
last two years, working capital reductions and other cost cutting
Fitch expects that credit metrics (with adjusted debt/EBITDAR at 7.4x
and EBITDAR/interest + rents at 1.3x as of March 3, 2012) will remain
stable over the next three years. There has been some recent improvement
in EBITDA with same store sales turning modestly positive since the
fourth quarter of fiscal 2011. The current impasse between Walgreen and
Express Scripts since January 2012 (where Walgreen is no longer part of
the Express Scripts pharmacy network) is also providing a boost to
prescription volume and therefore to EBITDA.
Over the next 12-24 months, the generic wave could provide a nice
windfall to the company's profitability. Whether this pushes EBITDA into
the $1 billion-plus range remains to be determined given offsetting
factors such as (1) ongoing pressure on pharmacy reimbursement rates
from both the pharmacy benefit management companies, which could
intensify given the recent merger between Medco and Express Scripts, and
the state and federal governments and (2) potential share losses to
larger and more capitalized competitors.
For the fiscal year ended Jan. 3, 2012, total same store sales was
positive at 2% with a front-end same store sales increase of 1.1% and a
pharmacy same store sales increase of 2.4%. Adjusted EBITDA (adjusted
for non-cash and one-time items) increased to $943 million from $859
million, the first increase in four years. This partly reflects the
benefit from prescription transfers from Walgreens and a 53rd week in