Skip to content
Subscriber Only

Duane Reade: An LBO On The Critical List

Its three-year debt binge turned the drug chain from gem to junk

Back when the leveraged-buyout boom was warming up three years ago, shareholders of Duane Reade Inc., the 249-store pharmacy chain based in New York, were complaining that private equity firm Oak Hill Capital Partners got too sweet a deal when it paid $750 million to buy the company.

Now it looks as if Oak Hill is turning out to be the loser, by as much as $240 million. Duane Reade has hemorrhaged cash from virtually the day the transaction closed in July, 2004. Oak Hill replaced the CEO after just 17 months. And the chain has seen its credit rating downgraded four times by Standard & Poor's (MHP ). It now stands at CCC, a level so deep into junk territory that it puts 1 in 4 odds on Duane Reade defaulting within a year. A spokesman for Oak Hill declined to comment.