Rite Aid trims revolver debt, progresses with refinancing 2010 debt

By Jennifer Lanning Drey

Portland, Ore., June 24 - Rite Aid Corp. repaid $303 million of revolver debt during the first quarter of fiscal 2010 and further improved its financial position in June by completing a significant portion of the refinancing of its September 2010 debt maturities, Mary Sammons, chief executive officer of Rite Aid, said Wednesday during the company's quarterly earnings conference call.

Sammons said a substantial increase in cash flow from operations during the quarter allowed Rite Aid to achieve what was its most noteworthy quarterly reduction of debt since its acquisition of the Brooks Eckerd stores.

For the period ended May 30, net cash from operating activities was $357.6 million, compared to net cash used in operations of $105 million in the first quarter of fiscal 2009. Chief financial officer Frank Vitrano said inventory generated $138 million during the fiscal 2010 quarter, compared to a use of $51 million in the same period of fiscal 2009.

"Improving our leverage is a top priority for us now and moving forward," Sammons said.

Refinancing 2010 debt

Rite Aid has also replaced a portion of its debt maturing in September 2010 as part of its comprehensive refinancing plan launched in the first quarter, she said. The maturing debt includes Rite Aid's $1.75 billion revolving credit facility, $145 million tranche 1 term loan and $570 million accounts receivable facility.

The company has completed the refinancing of its $145 million tranche 1 term loan and partially completed the $1.75 billion senior secured revolver with new facilities that include a $525 million term loan due June 2015 and $410 million of senior secured notes due June 2016.

Proceeds from the new $525 million term loan were used to repay the tranche 1 term loan and reduce the revolver by $350 million, Vitrano said.

Proceeds from the $410 million senior secured notes were used to repay expenses and reduce the revolver by another $403 million, he said.

Rite Aid said it has received commitments for $960 million of its proposed new $1 billion senior secured revolver due September 2012, which will be used to refinance the remainder of its existing revolver, Sammons said.

The company expects to close on the new revolver shortly.

"This refinancing gives us more time to improve our results with the initiatives we have planned as well as those that are in place and have already started to work," she said.

Extending maturities

Rite Aid will look to refinance its first- and second-lien accounts receivable securitization facilities later in calendar 2009 or in the beginning of 2010, Vitrano said during the call.

The company has several options, including refinancing the accounts receivable debt with a special purpose entity non-recourse off-balance sheet asset-backed loan or term loan, or refinancing it with a combination of first- and second-lien debt on balance sheet, he said.

The least likely option is refinancing the facilities with a new conduit, given the receivables conduit market, he said.

Based on the quality of the related collateral, Rite Aid is confident it will be able to refinance the facility, Vitrano said.

Rite Aid had $520 million drawn on the accounts receivable securitization facilities at May 31, according to Vitrano.

First-quarter results

Rite Aid's revenues for the first quarter of fiscal 2010 were $6.5 billion versus revenues of $6.6 billion in the prior-year quarter. The company said the 1.2% decrease was primarily a result of store closings.

Same-store sales for the quarter increased 0.6% over the same period in fiscal 2009.

Adjusted EBITDA was $249.2 million, compared to adjusted EBITDA of $241.1 million in the fiscal 2009 period. The increase was mainly the result of reduced selling, general and administrative expense.

"We know we have a lot of hard work ahead, especially as we continue to face the challenging economic environment, but we are optimistic that the improvement we've seen in the last three quarters is only the beginning as our team continues to focus on unlocking the value of Rite Aid," Sammons said.

Rite Aid expects to generate $325 million of free cash flow for full-year fiscal 2010, which is higher than previously expected due to inventory reductions and asset sales completed during the first quarter, Vitrano said.

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

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