Yesterday, the U.S.-based drugstore chain retailer, Rite Aid Corporation (RAD - Analyst Report) declared the completion of its debt refinancing activity announced on Jun 18. Under the refinancing activity, the company offered senior notes of $810 million, carrying a coupon rate of 6.75% and maturing in 2021.
The proceeds from this offering, along with its existing cash and borrowings will be utilized to redeem an equivalent amount of senior notes bearing an interest rate of 9.5% due in 2017.
As part of the offer, the company needs to have consent for amendments in the senior notes. As of Jul 1, Rite Aid received consent for approximately $739.6 million out of $810 million of 9.5% notes. The company announced its completion of purchase of these notes yesterday. Further, the tender offer is open until the midnight of Jul 16 for the remaining notes, unless extended or terminated earlier.
Apart from this, Rite Aid notified its intention to redeem all the notes bearing a coupon rate of 9.5%. The redemption of these notes will occur on Aug 1, at a price of 103.167% of the face value. In addition, holders of these notes will get accrued and unpaid interest, if there are any.
As per the company’s previous announcement, the fees, expenses and charges related to refinancing transactions will weigh upon its financial results – including net income and earnings per share.
At the end of fiscal 2013, this Zacks Rank #3 (Hold) company had $665.0 million borrowing outstanding under its senior credit facility and $115 million of outstanding letters of credit.
Rite Aid, which trails Walgreen Co. (WAG - Analyst Report) and CVS Caremark Corp. (CVS - Analyst Report) in terms of store count, has been consistently focusing on debt refinancing to lower its interest expenses and extend the maturity period. In early June, the company made a similar debt refinancing transaction involving a cash tender offer to redeem all of its 7.5% Senior Secured Notes worth $500 million with proceeds from a new $500 million second-lien term loan, along with available cash and borrowings.
Another company that recently indulged in refinancing transaction is Avis Budget Group Inc. (CAR - Analyst Report), a leading global car rental enterprise. As part of the transaction, this 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 provide them financial flexibility.