Rite Aid Case
Please find Rite Aid (RAD)’s 10-K for the 2022 fiscal year end on SEC.gov. Read the section “Indebtedness
and Credit Agreement”, and answer the following questions:
1) Explain the difference between Rite Aid’s secured and unsecured debt. Why does Rite Aid distinguish
between these two types of debt?
Secured debt are essentially assets that Rite Aid has that has collateral attached to it which the lender can
seize if Rite Aid is unable to pay its debts or defaults on the loan. Rite Aid’s secured debts in particular mostly
use property as collateral to support their loans. Unsecured debt, on the other hand, has no collateral attached to
it to guarantee the debt, but instead relies solely on Rite Aid’s creditworthiness for repayment.
Rite Aid distinguishes between these two types of debts to manage their debt structure. Therefore, Rite Aid
is able to better prioritize which assets are used as collateral and manage its overall debt structure. Furthermore,
in the case that Rite Aid is not able to pay its debts, separating the two types of debts makes it easier to find
how much debt is guaranteed by assets. Collateral-backed debt is less risky for creditors and it also provides
others with an understanding of what assets creditors have a rightful claim to. They have the two debts listed
separately in item 16 to distinguish between the two types of debt.
2) What does it mean for debt to be “guaranteed”? According to the disclosure, who has provided the guarantee
for some of Rite Aid’s unsecured debt?
A “guaranteed” debt means that a separate entity has pledged to take on the debt in the event that the main
entity can no longer cover its obligation to pay back the debt. In Rite Aid’s case, much of its debt is guaranteed
by its wholly-owned subsidiaries. Since Rite Aid is a holding company and has no assets of its own, the
subsidies provide the assets for Rite Aid to pay its obligations. Therefore, if Rite Aid were to no longer be able
to pay its debts, the subsidiaries would guarantee and take over the debt.
3) What is meant by the terms “senior,” “fixed-rate,” and “convertible”?
The term “senior” refers to debt that has top priority over any other debt obligations that the company has.
The term “fixed-rate” refers to debt that has solidified interest rates that do not change throughout the life of
the debt instead of having floating interest rates.
The term “convertible” means that a creditor can convert debt into another type of security within a
particular timeframe after the issuance of the debt.
4) How much total debt does Rite Aid have as of the most recent fiscal year end? How much of this is due
within the coming fiscal year? Reconcile the total debt reported in the disclosure with what Rite Aid reports on
its balance sheet.
For the fiscal year ended March 4, 2023 - total debt was $2,944,170
Current maturities on long-term debt and lease financing obligation was $6,332
For the fiscal year ended February 26, 2022 - total debt was $2,753,360,000
Current maturities on long-term debt and lease financing obligation was $5,544,000
Please find Rite Aid (RAD)’s 10-K for the 2022 fiscal year end on SEC.gov. Read the section “Indebtedness
and Credit Agreement”, and answer the following questions:
1) Explain the difference between Rite Aid’s secured and unsecured debt. Why does Rite Aid distinguish
between these two types of debt?
Secured debt are essentially assets that Rite Aid has that has collateral attached to it which the lender can
seize if Rite Aid is unable to pay its debts or defaults on the loan. Rite Aid’s secured debts in particular mostly
use property as collateral to support their loans. Unsecured debt, on the other hand, has no collateral attached to
it to guarantee the debt, but instead relies solely on Rite Aid’s creditworthiness for repayment.
Rite Aid distinguishes between these two types of debts to manage their debt structure. Therefore, Rite Aid
is able to better prioritize which assets are used as collateral and manage its overall debt structure. Furthermore,
in the case that Rite Aid is not able to pay its debts, separating the two types of debts makes it easier to find
how much debt is guaranteed by assets. Collateral-backed debt is less risky for creditors and it also provides
others with an understanding of what assets creditors have a rightful claim to. They have the two debts listed
separately in item 16 to distinguish between the two types of debt.
2) What does it mean for debt to be “guaranteed”? According to the disclosure, who has provided the guarantee
for some of Rite Aid’s unsecured debt?
A “guaranteed” debt means that a separate entity has pledged to take on the debt in the event that the main
entity can no longer cover its obligation to pay back the debt. In Rite Aid’s case, much of its debt is guaranteed
by its wholly-owned subsidiaries. Since Rite Aid is a holding company and has no assets of its own, the
subsidies provide the assets for Rite Aid to pay its obligations. Therefore, if Rite Aid were to no longer be able
to pay its debts, the subsidiaries would guarantee and take over the debt.
3) What is meant by the terms “senior,” “fixed-rate,” and “convertible”?
The term “senior” refers to debt that has top priority over any other debt obligations that the company has.
The term “fixed-rate” refers to debt that has solidified interest rates that do not change throughout the life of
the debt instead of having floating interest rates.
The term “convertible” means that a creditor can convert debt into another type of security within a
particular timeframe after the issuance of the debt.
4) How much total debt does Rite Aid have as of the most recent fiscal year end? How much of this is due
within the coming fiscal year? Reconcile the total debt reported in the disclosure with what Rite Aid reports on
its balance sheet.
For the fiscal year ended March 4, 2023 - total debt was $2,944,170
Current maturities on long-term debt and lease financing obligation was $6,332
For the fiscal year ended February 26, 2022 - total debt was $2,753,360,000
Current maturities on long-term debt and lease financing obligation was $5,544,000
