Yesterday, the U.S.-based drugstore chain retailer, Rite Aid Corporation (RAD) raised the offering of senior notes to $810 million. Earlier, this week, the company had announced its intention to offer $400 million senior notes maturing in 2021.
This is the second time in June that Rite Aid is implementing a refinancing scheme. The new senior notes will carry a coupon rate of 6.75% and mature in 2021. The offering is expected to close on Jul 2, 2013.
The company plans to use the proceeds from this offering, along with its existing cash and borrowings to redeem an equivalent amount of senior notes bearing an interest rate of 9.5% due in 2017.
The company informed this separately by revealing its cash tender offer to buy all of its outstanding $810 million worth of senior notes carrying a coupon rate of 9.5% that will mature in 2017. As part of the offer, the company is also seeking consent for amendments in the senior notes. Unless extended or terminated earlier, the particular offer will expire at midnight on Jul 16, 2013.
As per the company’s previous announcement, the fees, expenses and charges related to the refinancing transactions will weigh upon its financial results – including net income, earnings per share and guidance.
At the end of fiscal 2013, this Zacks Rank #2 (Buy) company had $665.0 million borrowing outstanding under its senior credit facility and $115 million of outstanding letters of credit.
Earlier this month, the company had announced its first debt refinancing transaction in an attempt to extend the maturity of some debts and reduce interest expenses. The transaction involves a cash tender offer to redeem all of Rite Aid’s 7.5% Senior Secured Notes worth $500 million with proceeds from a new $500 million second-lien term loan, along with existing cash and borrowings.
Along with its refinancing transaction in early June, Rite Aid provided estimates for the first quarter and fiscal 2014. Rite Aid, which trails Walgreen Co. (WAG) and CVS Caremark Corp. (CVS) in terms of store count, anticipates net income for the quarter in the range of $75–$90 million or 8–9 cents per share. Moreover, the company expects adjusted EBITDA in the range of $335–$345 million.
For fiscal 2014, Rite Aid raised its low-end adjusted EBITDA guidance range to $1.090 billion from $1.075 billion, but it kept its high-end guidance of $1.175 billion unchanged. However, Rite Aid lowered its fiscal 2014 high-end adjusted earnings guidance. The company now expects adjusted net income in the range of $49–$189 million or 4–19 cents per share, compared with 4–20 cents forecasted earlier.
Another company that recently indulged in refinancing transaction is Avis Budget Group Inc. (CAR), a leading global car rental enterprise. As part of the transaction, the company increased its term loan facility to $1 billion from the existing $900 million, for a lower rate of interest. However, the new term loan borrowing, like the existing facility matures in 2019.
We believe the act of lowering interest rate on the existing loan facility and redeeming high-cost debt will enable companies to reduce corporate interest expenses, and imparts financial flexibility.
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