Analysts say Rite Aid Corp. may be close to an agreement with lenders for restructuring a $1.3 billion credit line that backs up its commercial paper program.
The agreement, ironed out in talks last Friday, would roll over an undisclosed amount of commercial paper into the credit line, said Jon Kyle Cartwright, an analyst with Raymond James & Associates. Under its current terms, the one-year credit line would expire in October.
"It's just a matter of getting it past the lawyers," Mr. Cartwright said, adding that Rite Aid would still face debt-servicing costs by using its credit line, but "the company isn't having massive liquidity problems. The banks wouldn't have agreed to an extension if they were."
Calls to Rite Aid and lenders seeking comment were not returned.
If a definitive agreement is reached, it would go a long way toward helping Rite Aid recover from a series of blows that nearly put the drugstore chain on the ropes. First, the company found itself unable to repay its commercial paper without refinancing the debt. Then, early last week, it canceled a meeting with analysts to discuss fiscal second-quarter earnings.
A day later, the Florida attorney general alleged that Rite Aid intentionally overcharged prescription drug customers in more than 800,000 transactions. Those events sent shares of the retailer down more than 14% last Friday, to $11 on the New York Stock Exchange. Rite Aid shares closed Monday's trading at $11.50.
Also on Friday, Rite Aid said it would eliminate 330 jobs at its headquarters and its regional offices. But analysts said the cost-cutting effort may be too little, too late. Last Thursday, Moody's Investors Service said it had placed Rite Aid debt on review for a possible downgrade.
"Rite Aid is currently weakly positioned," said Elaine Francolino, a Moody's senior analyst. "Rite Aid's $1.3 billion bridge revolving credit ... must be restructured or replaced."
Rite Aid loans have been trading on the secondary market, and original lenders may no longer be exposed. But the company's historical lenders include Morgan Guaranty Trust Co., Bank of America Corp., Citigroup Inc., Bank One Corp., PNC Bank Corp., Unionbancal Corp., and Wachovia Corp.
Rite Aid also has a separate $1 billion syndicated credit facility for general purposes and a $900 million presence in the commercial mortgage-backed securities market. Rite Aid loans are part of 66 mortgage-backed securities' packages.
