Picking up the pieces after a tumultuous week that saw the resignation of its chairman and the disclosure that earnings had been inflated by half a billion dollars, Rite Aid Corp. said yesterday that it has worked out a deal that gives it an extra year to pay off $1.3 billion that otherwise would have been due tomorrow.
It was a piece of good news in a year marred by disappointing earnings and damaging revelations about company dealings.
The No. 3 drugstore chain's chairman and chief executive, Martin L. Grass, resigned last week as the company announced that it had misstated earnings by at least $500 million for the past three years, half of its profit for the period.
Under the agreement announced yesterday, a $1.3 billion revolving credit line was extended to Nov. 1, 2000, and a $300 million loan from Morgan Guaranty that had been due on demand was extended for a year.
Rite Aid has an additional $1.1 billion in credit lines, the terms of which were recently amended. Details about those amendments will not be available until next week, when the company files documents with the Securities and Exchange Commission, said Rite Aid spokeswoman Sarah Datz.
Shares of the Camp Hill, Pa.-based company, which had reached nearly $51 in January, closed up 87.5 cents yesterday at $9.25.
"I think everyone heaves a sigh of relief to know that this [restructuring] has been completed," said Sally H. Wallick, an analyst at Legg Mason in Baltimore. "They've got a little over a year, which gives them a good bit of breathing room to further explore selling some assets and strengthening their balance sheet, and they have the issue of leadership to deal with."
Rite Aid also received an infusion from Leonard Green & Partners, which bought $300 million of the company's preferred stock with an 8 percent dividend payable in cash or additional shares. It is convertible to common stock at $11 a share.
Green was one of the owners of Thrifty PayLess Holdings Inc., an Oregon-based drugstore chain purchased by Rite Aid in 1996 for $1.55 billion in stock and $890 million in debt. Bringing Thrifty into the Rite Aid chain is seen by analysts as one of Grass' key missteps because Thrifty's stores were too large to properly manage and because Rite Aid had no customer base in the West.
After the deal closed, Green served on Rite Aid's board from January 1997 through June 1999. The deal announced yesterday puts Green on the board again. His business partner, Jonathan Sokoloff, also gets a seat.
