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Rite Aid Asks Bondholders for More Time Amid Tepid Turnaround

Rite Aid Asks Bondholders for More Time Amid Tepid Turnaround

Rite Aid Corp. is asking some of its creditors for a few more years of patience while it tries to turn around the struggling drugstore chain.

Bondholders are being asked to swap $750 million of Rite Aid’s unsecured 2023 notes for securities that wouldn’t be paid back for three more years, according to a statement. They’d also have to accept a haircut on their holdings. In return, the new notes would be secured by Rite Aid’s assets and pay a higher interest rate.

The debt swap was disclosed as part of a first-quarter earnings release that included a net loss from continuing operations of $72.7 million. Rite Aid withdrew its forecasts, citing effects of the coronavirus pandemic on its business.

“Rite Aid’s fiscal 2021 is shaping up to be another challenging year, as it must face lingering structural challenges and pandemic-related shortfalls,” Bloomberg Intelligence analysts Jonathan Palmer and Fallon Stephan wrote in a note prior to the earnings results.

Exchange Terms

The proposed swap would exchange the unsecured 2023 notes that pay interest of 6.125% for secured notes that come due in 2026 and pay 8%. Participating bondholders would receive $800 in new notes and $194 in cash for every $1,000 of face value if they tender early.

Rite Aid, based in Camp Hill, Pennsylvania, is also asking bondholders for permission to create more secured debt.

The drugstore chain has continued to struggle with high leverage tied to its $3.3 billion of debt amid pressure on its pharmacy and retail businesses.

While its deal to sell about half of its stores to Walgreens helped reduce debt, Rite Aid has been trying to improve in-store retail sales while also dealing with falling pharmacy revenue due to reimbursement pressure, according to BI.

New Boss

The company recruited Heyward Donigan, a digital health executive with little retail background, to be its new chief executive and presented a vision for its turnaround in March.

“Rite Aid emerged from its asset sale to Walgreens as a smaller competitor with a cleaner, but still highly levered, balance sheet. It faces an uphill climb due to structural conditions as it tries to improve profitability,” Bloomberg Intelligence said in a March note.

It benefited from customers stocking up on essential medications and cleaning supplies in anticipation of the Coronavirus shelter-in-place orders, according to the earnings statement. However, many of Rite Aid’s stores are in states that have been hardest hit, according to BI, so the initial burst of purchases may not be sustained as the pandemic drags on.

The notes targeted by Rite Aid rose by 3 cents on the dollar to 98 cents, according to Trace bond trading data. Some of its longer-dated unsecured debt hovers around 85 cents. The early tender deadline is July 9 at 5 p.m. New York time. The exchange offer expires July 23 at 11:59 p.m.

©2020 Bloomberg L.P.