Rite Aid 2010 Annual Report Download - page 34

In June 2009, we issued $410.0 million of 9.75% senior secured notes due June 12, 2016. These
notes are unsecured, unsubordinated obligations of Rite Aid Corporation and rank equally in right of
payment with all other unsubordinated indebtedness. Our obligations under these notes are guaranteed,
subject to certain limitations, by the same subsidiaries that guarantee the obligations under the senior
secured credit facility. These guarantees are shared, on a senior basis, with debt outstanding under the
senior secured credit facility. The indenture that governs the 9.75% notes contains covenant provisions
that, among other things, allow the holders of the notes to participate along with the term loan holders
in mandatory prepayments resulting from the proceeds of certain asset dispositions (at the option of
the noteholder) and include limitations on our ability to pay dividends, make investments or other
restricted payments, incur debt, grant liens, sell assets and enter into sale-leaseback transactions. The
9.75% senior secured notes due June 2016 were issued at 98.2% of par.
The indentures that govern our secured and guaranteed unsecured notes contain restrictions on
the amount of additional secured and unsecured debt that can be incurred by us. As of February 27,
2010, the amount of additional secured debt that could be incurred under these indentures was
approximately $997.6 million (which amount does not include the ability to enter into certain sale and
leaseback transactions). However, we could not incur any additional secured debt as of February 27,
2010 assuming a fully drawn revolver and the outstanding letters of credit. The ability to issue
additional unsecured debt under these indentures is governed by an interest coverage ratio test.
Sale Leaseback Transactions
During fiscal 2010 we sold a total of 3 owned stores to independent third parties. Net proceeds
from these sales were $8.0 million. Concurrent with these sales, we entered into agreements to lease
the stores back from the purchasers over minimum lease terms of 10 to 20 years. We accounted for all
of these leases as operating leases. A gain on the sale of these stores of $5.3 million was deferred and
is being recorded over the minimum term of these leases.
2009 Transactions
On June 4, 2008, we commenced a tender offer and consent solicitation under which we offered to
repurchase all outstanding amounts of our 8.125% senior secured notes due May 2010, our 7.5% senior
secured notes due January 2015 and our 9.25% senior notes due June 2013. On July 8, 2008, the tender
offer expired and on July 9, we repaid $348.9 million of the outstanding balance of our 8.125% notes
due May 2010, $199.6 million of our 7.5% notes due January 2015 and $144.0 million of the
outstanding balance of our 9.25% notes due June 2013. In addition, on July 9, 2008, we sent a notice of
redemption for the remaining outstanding 7.5% notes due 2015 and satisfied and discharged the
indenture governing such notes. As a result of this tender and consent solicitation, the indentures
governing these notes were amended to eliminate substantially all of the restrictive covenants therein
including limitations on our ability to incur additional debt and grant liens against assets. In addition,
the guarantees on each series were eliminated and the 8.125% notes are no longer secured. We did the
transaction because these notes had restrictions on secured debt that prohibited us from fully drawing
on our revolving credit facility under certain circumstances. We incurred a loss on debt modification
related to this transaction of $36.6 million.
These transactions were financed via the issuance of a new senior secured term loan (the
Tranche 3 Term Loan) described above and the issuance of a $470.0 million aggregate principal amount
of 10.375% senior secured notes due July 2016. These notes are unsecured unsubordinated obligations
of Rite Aid Corporation and rank equally in right of payment with all other unsubordinated
indebtedness. Our obligations under the notes are guaranteed, subject to certain limitations, by
subsidiaries that guarantee the obligations under our senior secured credit facility. The guarantees are
secured by shared second priority liens with holders of our 7.5% senior secured notes due 2017 and our
10.25% senior secured notes due 2019. The indenture that governs the 10.375% senior secured notes
due 2016 contains covenant provisions that, among other things, include limitations on our ability to
pay dividends, make investments or other restricted payments, incur debt, grant liens, sell assets and
34