Rite-Aid

Rite Aid Corporation –- Long-Term Debt

Concepts

a.

i. Secured debt of Rite-Aid is backed by and tied to specific assets of the corporation while unsecured debt is based on their credit-worthiness to pay this debt. Distinguishing between secured/unsecured debt provides needed information to investors, credit rating agencies, and lenders.

ii. Guaranteed means a promise to answer for payment of debt or performance of some obligation if the entity liable fails to perform. Rite-Aid's wholly owned subsidiaries guarantee the debt.

iii. Senior denotes the debt holders that have the highest rights of priority if a firm falls into bankruptcy.

Fixed-rate is the term the means the interest rate remains constant over the term of the debt.

Convertible is a type of bond that allows the holder to exchange the bond for common stock under certain conditions.

iv. To finance the assets of the firm, corporations have to diversify their debt, and lenders assume varying degrees of risk that get passed along to the borrower. Firms cannot realistically attach all debts to assets and the risk profile can vary significantly between secured and unsecured debt. Establishing credit worthiness is an the unsecured debt market is another key component of financing the business.

Process

b.

Total debt on Feb 27, 2010 = $6,370,899,000. $51,502,000 is due within the coming fiscal year. On the B/S, LTD = $6,185,633,000 Lease financing obligations = $133,764,000, and current maturities of LTD and lease financing obligations = $51,502,000. The sum of these three accounts equals the total debt.

c.

i. $500,000. It was issued at par since there is no change between 2009 and 2010

ii. Dr Cash $500,000

Cr Bonds Payable $500,000

iii. Dr Interest Expense $37,500

Cr Cash $37,500

iv. Dr Bonds Payable $500,000

Cr Cash $500,000

d.

i. The face value of the notes is $410,000,000. The carrying value of these...