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Rite Aid Case Analysis

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Rite Aid Corporation-Long Term Debt Rite Aid is one of the leading drug store chains within the United States. Rite Aid predominantly operates on the east and west coast with a high degree of competition from other drug store chains such as Walgreens and CVS. As a result of both the weak economic conditions along with the high degree of competition Rite Aid faces, I would expect to see a large amount of debt on Rite Aid’s 10K report for fiscal year ending February 27, 2010.
A.
a. Secured debt is protected by assets given up as collateral by the borrower to protect the lender in the event of default. Unsecured debt is not protected by any such collateral and is generally more risky. Secured debt restricts the use of assets. The restrictions placed on assets are one rational for separating both secured and unsecured debt items.
b. Guaranteed debt can be defined as debt that has a guarantor or a secondary promise to pay the debt in the event the borrower defaults. Rite Aid’s subsidiaries have provided the guarantee according to note 11 of the 10K report.
c. Senior - senior debt describes the debt first repaid in the event of bankruptcy. Senior is simply a term to describe a position of repayment in the event of bankruptcy.
Fixed Rate – fixed rate refers to the interest rate on outstanding debt. If debt is fixed the interest rate is set at a predetermined rate and will not change regardless of market conditions.
Convertible – the term convertible debt refers to debt that can be converted to equity shares.
d. Rite Aid has a vast array of different debt in order to match future cash flows with debt payments. The inherent risk associated with each form of debt is different. As such the varying risk results in a vast array of interest rates. All things equal as risk increases, rates increase. Rite Aid’s large amount of debt also may explain why they hold...

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