Rite Aid files for Chapter 11

January 2024 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2024 Issue

US drugstore chain Rite Aid filed for Chapter 11 bankruptcy protection in October in a bid to turn around its ailing business and significantly reduce its debt load.

According to Rite Aid, one of the largest pharmacy chains in the US, the company reached a deal with its creditors on a restructuring plan that includes evaluating its retail footprint and closing underperforming locations. Rite Aid also said its lenders had agreed to extend $3.45bn in new funding to “provide sufficient liquidity” as it embarks on its restructuring plan. The company, whose largest creditors include pharmaceutical company McKesson Corporation and insurer Humana Health, expects to continue to operate its stores and serve its customers during the bankruptcy.

The company has also announced plans to sell its pharmacy benefit company Elixir and resolve lawsuits over its sale of addictive opioid medications, which have hung over the company for some time. A combination of high debt, revenue declines, increased competition and opioid litigation has combined to cause the company serious financial difficulty.

Rite Aid and other pharmacies have faced increasing competition from retailers like Amazon, Target and Walmart in recent years, which offer lower prices and home delivery. Rite Aid’s bigger, more traditional direct rivals CVS and Walgreens have pivoted to a healthcare focus and made sizeable investments to match.

The filing marks a dramatic decline for what was once the biggest drugstore chain in the US. In 1998, Rite Aid’s market value was nearly $13bn; in October, its market value was less than $40m.

During the quarter ended 3 June, revenue fell to $5.65bn, down from $6.01bn year-on-year. The company’s net loss widened to $306.7m, or $5.56 per share, compared with a net loss of $110.2m or $2.03 per share, in the same period in 2022. Rite Aid has also lowered its fiscal 2024 outlook and warned investors it expects to lose between $650m and $680m for the full year, which is slated to end in late February.

Founded in 1962, Rite Aid is one of the largest pharmacy retailers in the US. The company employs 45,000 people at more than 2000 retail stores in 17 states. The company had $24bn in revenue in fiscal year 2023, filling 200 million prescriptions in the past year. It also had $750m in losses for fiscal year 2023 while facing mounting litigation costs. The US government has accused Rite Aid of ignoring ‘red flags’ while filling illegal opioids prescriptions, and the company faces 1600 other opioid lawsuits from state and local governments, hospitals and individuals. Rite Aid has asked a court to dismiss a lawsuit filed by the Department of Justice (DOJ) and denied allegations it filled unlawful opioid prescriptions.

Plummeting demand for coronavirus (COVID-19) vaccines and testing, a membership reduction in the company’s prescription drug plan, and a loss of customers from its Elixir pharmacy benefits business have all contributed to a slowdown in the company’s revenue. Rite Aid’s struggles have been further exacerbated by its decision to close retail stores of late. At the time of the filing, the company had around 2000 locations across 17 states. CVS Pharmacy, by comparison, has more than 9500 stores and Walgreens around 8700.

Rite Aid also announced the appointment of Jeffrey S. Stein as chief executive, chief restructuring officer and a member of the company’s board of directors. Elizabeth Burr had been serving as interim chief executive since January 2023 and will remain on the company’s board.

“Rite Aid has served customers and communities across our country for more than 60 years, and the important actions we are taking today will enable us to move ahead as a stronger company,” said Mr Stein. “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. 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.

“We remain focused on serving our customers and communities, and we are grateful that they continue to choose our stores and pharmacies for their healthcare needs. We thank our associates for their ongoing hard work and dedication, and we extend our gratitude to our partners, suppliers and vendors for their continued support,” he added.

Richard Summerfield