The long-rumored bankruptcy filing is happening at Rite Aid.
On Sunday, Oct. 15, the struggling drug store retailer initiated a voluntary court-supervised Chapter 11 bankruptcy process in the U.S. Bankruptcy Court for the District of New Jersey. As part of this process, which has been approved by senior secure noteholders, some Rite Aid lenders have agreed to provide the company with $3.45 billion in financing to provide needed liquidity.
The company.which received warning of potential delisting from the New York Stock Exchange on Oct. 5, 2023 listed estimated assets and liabilities in the range of $1 billion to $10 billion in its court filing. In connection with the bankruptcy process, Rite Aid, which has about 2,100 locations across 17 states, said it will continue assessing its footprint and close additional underperforming stores.
Previous media reports indicated the retailer may shutter 400 to 500 stores. A&G Realty Partners is assisting the company with its store closing and lease restructuring program.
"The court-supervised process provides Rite Aid with legal tools to accelerate our footprint optimization in an efficient and orderly manner," Stein said. "We look forward to working closely with our landlords to determine the best path forward for each of our stores.”
Rite Aid names financial expert Jeffrey Stein as CEO
Rite Aid has also named Jeffrey S. Stein as CEO, chief restructuring officer (CRO) and a member of the board of directors, effective immediately. Stein succeeds Elizabeth (“Busy”) Burr, who has served as interim CEO of Rite Aid since January 2023. Burr will continue to serve on the company’s board.
Stein is founder and managing partner of Stein Advisors LLC, a financial advisory firm that provides consulting services to public and private companies experiencing challenges including financial and operational restructuring. Prior to founding the company in 2010, Stein was a co-founder and principal of Durham Asset Management LLC. From 1997 to 2002, Stein served as co-director of research at The Delaware Bay Company.
'With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives and accelerating the execution of our turnaround strategy," Stein said in a statement. "In doing so, we will be even better able to deliver the healthcare products and services our customers and their families rely on – now and into the future.”
Additionally, Rite Aid said it had reached an agreement for independent pharmacy benefit-solutions company MedImpact Healthcare Systems Inc. to acquire its Elixer Solutions business.
Rite Aid faces existential challenges
Rite Aid, which has more than $3.3 billion in long-term debt, is facing more than 1,000 federal, as well as a number of state-level, lawsuits over allegations that the chain contributed to the country’s opioid crisis by oversupplying painkillers such as OxyContin.
Also, the Department of Justice in March 2023 filed a civil lawsuit against the company, claiming that it knowingly processed “unlawful prescriptions for controlled substances,” which stands in violation of False Claims Act and Controlled Substances Act.
The bankruptcy filing will put a pause to the lawsuits and potentially allow Rite Aid resolve them in a single forum, as well asallow the company to restructure its debt.
In January, Rite Aid appointed board member Elizabeth (“Busy”) Burr as interim chief executive following the abrupt departure of Heyward Donigan. Her exit came as the company has struggled to compete with pharmacy rivals CVS Health and Walgreens, both of which has made extensive inroads into the broader field of health care.
Rite Aid in June 2023 reported a first-quarter net loss of $306.7 million, or $5.56 loss per share, compared to last year’s first quarter net loss of $110.2 million, or $2.03 loss per share. Revenues fell to $5.65 billion from $6.01 billion in the prior year.
Benefits of filing Chapter 11
According to Rite Aid, the court-supervised bankruptcy process will provide an “orderly and efficient” forum for the company to:
Finalize and build consensus for the agreement in principle the Company has reached with certain senior secured noteholders;
Accelerate its store footprint optimization plan;
Implement a proposed transaction under which independent pharmacy benefit solutions company MedImpact would acquire its Elixir Solutions pharmacy benefits and services company, subject to the outcome of a court-approved marketing process;
Access additional liquidity; and,
Resolve litigation claims in an “equitable manner.”
Kirkland & Ellis LLP is serving as legal advisor, Guggenheim Securities is serving as investment banker and Alvarez & Marsal is serving as transformation officer and financial advisor to the company.