• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Related Issuers
Rating Action:

Moody's rates Rite Aid's $480 million senior guaranteed notes Caa3

Global Credit Research - 14 Feb 2012

Approximately $6.3 Billion of Debt Securities Affected.

New York, February 14, 2012 -- Moody's Investors Service today assigned a Caa3 rating to Rite Aid Corporation ("Rite Aid") proposed $480 million senior guaranteed notes due 2020. All other ratings including its Caa2 Corporate Family Rating, Caa2 Probability of Default Rating, and SGL-3 Speculative Grade Liquidity rating were affirmed. The rating outlook is stable.

The proceeds of the proposed $480 million senior guaranteed notes will be used to repay the 8.625% senior guaranteed notes due 2015. Following the repayment, the senior notes will be retired and its Caa3 rating withdrawn.

The following rating is assigned

$480 million senior guaranteed notes due 2020 at Caa3 (LGD 5, 82%)

The following rating will be withdrawn upon their repayment

8.625% senior guaranteed notes due 2015 at Caa3 (LGD 5, 80%)

The following ratings are affirmed and LGD point estimates changed

Corporate Family Rating at Caa2

Probability of Default Rating at Caa2

First-lien bank credit facilities at B3 (LGD 2, to 26% from 25%)

First-lien senior secured notes at B3 (LGD 2, to 26% from 25%)

Second-lien secured notes at Caa2 (LGD 4, to 57% from 55%)

Guaranteed senior notes at Caa3 (LGD 5, to 82% from 80%)

Senior notes and debentures at Ca (LGD 6, 95%)

Speculative Grade Liquidity rating at SGL-3

RATINGS RATIONALE

Rite Aid's Caa2 Corporate Family Rating reflects its weak credit metrics and unsustainable capital structure with debt to EBITDA of 8.8 times and EBITA to interest expense of 0.8 times. Although Moody's believes that Rite Aid earnings will benefit from Walgreen's dispute with Express Scripts as well as from the strong generic pipeline, Moody's anticipates that lower reimbursement rates will offset some of this positive earnings pressure. Thus, Moody's forecasts that Rite Aid's credit metrics will remain weak. In addition, Rite Aid faces a tradeoff between the need to address its sizable 2014 and 2015 debt maturities against the likelihood that any refinancing will be at a higher interest rate. Should Rite Aid successfully refinance its 2014 and 2015 debt maturities, its borrowing costs will likely increase further weakening Rite Aid's interest coverage. Consequently, Moody's is concerned that Rite Aid may choose to voluntarily restructure its debt over the medium term.

However, positive ratings consideration is given to Rite Aid's adequate liquidity which provides it with runway to address its debt maturities. Positive ratings consideration is also given to Rite Aid's large revenue base and the solid opportunities of the prescription drug industry.

The stable outlook acknowledges Rite Aid's adequate liquidity and lack of near dated debt maturities. Rite Aid's next significant debt maturity is in 2014 when the remaining $1 billion of term loans is due. In addition, the stable outlook reflects our expectation that Rite Aid's earnings will modestly improve but that the improvement will not meaningfully improve its credit metrics.

A higher rating would require that Rite Aid demonstrate that it can maintain EBITDA less capital expenditures to interest expense of at least 1.0 time while reducing absolute debt to levels that create a capital structure that is more sustainable over the longer term. In addition, a higher rating would require Rite Aid to continue to maintain adequate liquidity.

Rite Aid's ratings could be lowered if the company experiences a decline in earnings or liquidity, should free cash flow become persistently negative, or should the probability of default increase including by way of a distressed exchange.

The principal methodology used in rating Rite Aid Corporation was the Global Retail Industry Methodology published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Rite Aid Corporation, headquartered in Camp Hill, Pennsylvania, operates about 4,800 drug stores in 31 states and the District of Columbia. Revenues are about $26 billion.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Margaret Taylor
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Rite Aid's $480 million senior guaranteed notes Caa3
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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