iii. What is meant by the terms “senior”, “fixed-rate”, and “convertible”?
Senior debt, frequently issued in the form of senior notes or referred to as senior loans, is debt that takes priority over other unsecured or otherwise more “junior” debt owed by the issuer. Senior debt has greater seniority in the issuer’s capital structure than subordinated debt. In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment.
A fixed rate loan is a loan where the interest rate doesn’t fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments.
Convertible notes are unsecured and are effectively junior to the secured debt of the company. The notes are convertible, at the option of the holder, into shares of the company’s common stock. For Rite Aid, it is at a conversion price of $2.59 per share, subject to adjustment to prevent dilution, at any time.
iv. Speculate as to why Rite Aid has many different types of debt with a range of interest rates.
Rite Aid has many different types of debt like secured debt, guaranteed unsecured debt and unsecured unguaranteed debt. All of these are with a range of interest rates.
Rite Aid might need different sources of financing to fund its different activities. Because each source has its own terms and conditions that’s why they are getting different interest rates. Some of its debt has to be paid with greater priority and some are with greater interest rates. The company is in compliance with restrictions and limitations included in the provisions of various loan and credit agreements.