Under
the terms of the Receivables Financing Agreement dated as of September 21, 2004
(as amended, the “Receivables Financing Agreement”), Rite Aid Corporation (the
"Company") sells substantially all of its eligible third party pharmaceutical
receivables to a special purpose entity ("SPE") and retains servicing
responsibility (the "Existing Facility"). The assets of the SPE are not
available to satisfy the creditors of any other person, including any of the
Company’s affiliates. These agreements provide for the Company to sell, and for
the SPE to purchase, these receivables. The SPE then transfers interests in
these receivables to various commercial paper vehicles
("CPVs"). Under the terms of the securitization agreements, the total
amount of interest in receivables that can be transferred to the CPVs is $650
million. The amounts available to the Company under the Receivables Financing
Agreement are dependant upon a formula that takes into account such factors as
write-off history, receivable concentrations and other
adjustments. Adjustments to the formula are at the discretion of the
CPVs. Should any of the CPVs fail to renew their commitment under
these agreements, the Company has access to a backstop facility, which is backed
by the banks under the securitization agreement, and which expires in September
2010, to provide receivable financing to the Company. Similar to the Receivables
Financing Agreement, amounts available under the backstop facility would be
dependent upon a formula that takes into account such factors as default
history, obligor concentrations and potential dilution and adjustments to the
formula would be at the discretion of the banks.
As
previously disclosed, on January 15, 2009, the Company entered into an amendment
to its Receivables Financing Agreement, by and among Rite Aid Funding II, CAFCO,
LLC, CRC FUNDING, LLC, Falcon Asset Securitization Company LLC, Variable Funding
Capital Company LLC, as the investors, Citibank, N.A. ("Citibank"), JPMorgan
Chase Bank, N.A. ("JPMorgan") and Wachovia Bank, National Association
("Wachovia"), as the banks, Citicorp North America, Inc. ("CNAI"), as program
agent, CNAI, JPMorgan and Wachovia, as investor agents, Rite Aid Hdqtrs.
Funding, Inc., as collection agent, and certain other parties thereto as
originators, extending their commitment to the Receivables Financing Agreement,
which had been scheduled to expire on January 15, 2009, to January 22, 2009 (the
"First Extension Period"). On January 22, 2009, the Company
entered into an additional Amendment (the " Renewal Amendment") with the parties
named above that provides for a renewal of the commitments under the
Receivables Financing Agreement for a 364-day period, commencing January 22,
2009 and ending January 21, 2010 (the "Renewal Period"). The Company
continues to have access to the backstop facility, which expires in September
2010.
As
previously disclosed, the CPVs have the discretion under the Receivables
Financing Agreement to adjust the amount of transferred receivables permitted to
be outstanding at any one time based on a formula that takes into account a
number of factors, including obligor concentrations, and under
the Renewal Amendment, the CPVs have lowered certain concentration
limits which will result in a step-down in borrowing availability
beginning January 22, 2009 of approximately $100
million and an additional step-down of approximately $100 million
beginning February 20, 2009. To replace such loss of borrowing availability
under the Receivables Financing Agreement, the Company has executed a Commitment
Letter (the "Commitment Letter") with Citigroup Global Markets Inc. (“Citi”),
pursuant to which Citi will act as sole lead arranger and sole bookrunning
manager on a new second priority accounts receivable securitization term loan
(the "Second Lien Facility"). The Second Lien Facility will be up to
$200 million, of which Citi has already committed to provide $100 million of the
Second
Lien Facility (subject to a number of conditions as more fully set forth in the
Commitment Letter attached hereto as Exhibit 99.2) and arrange on a best efforts
basis a syndicate to provide up to an additional $100 million. Citi's
obligations with respect to the syndication continue through the earlier of (a)
the closing of the Second Lien Facility and (b) February 20,
2009. There can be no assurance that such efforts will be successful
or that the Second Lien Facility will be in an aggregate amount in excess of the
currently committed $100 million facility.
Amounts
outstanding under the Second Lien Facility will be secured by second priority
liens on the eligible third party pharmaceutical receivables securing the
Existing Facility. The Second Lien Facility is expected to close on
or about February 20, 2009 (subject to satisfaction of the conditions
contained in the Commitment Letter) and mature on September 14,
2010.
As
previously disclosed, the Company has four primary sources of liquidity: (i)
cash and cash equivalents, (ii) cash provided by operating activities, (iii) the
sale of accounts receivable under its receivable securitization agreements and
(iv) the revolving credit facility under its senior secured credit facility.
Based upon its current levels of operations, planned improvements in its
operating performance, the approval by its stockholders of the proposed reverse
stock split and the opportunities that it believes the acquisition of Brooks
Eckerd provides, the Company believes that cash flow from operations together
with available borrowings under the senior secured credit facility, sales of
accounts receivable under the Existing Facility and the new Second Lien
Facility that has been committed to by Citi and other sources of liquidity will
be adequate to meet its requirements for working capital, debt service and
capital expenditures for the foreseeable future.
The
foregoing descriptions of the Renewal Amendment and the Second Lien
Facility do not purport to be complete and are qualified in their entirety by
reference to the Amendment and Commitment Letter, which are filed as Exhibits
99.1 and 99.2 hereto, respectively.
Item
2.03. Creation of a Direct Financial Obligation or an Obligation
Under an Off-balance Sheet Arrangement of a Registrant.
See description under Item
1.01.
Item
7.01. Regulation FD Disclosure.
In connection with the Commitment
Letter and syndication of the Second Lien Facility, certain
information relating to the third party pharmaceutical receivables
transferred under the Receivables Financing Agreement is being provided to
potential participants in the Second Lien Facility and is filed as Exhibit 99.3
to this current report. This data should be read
together with the Company's annual and quarterly financial statements
and other information included in the Company’s
filings with the Securities and Exchange
Commission.