Rite Aid files for bankruptcy, scores potential $3.45B cash infusion

Rite Aid Corp. has initiated Chapter 11 proceedings in a bid to recover from myriad financial troubles and keep itself afloat.

The company’s precipitating woes have included mounting debt, opioid lawsuits and somnolent sales.

The survival strategy involves submitting to supervision by a federal bankruptcy court, reaching financial agreements with key creditors and securing $3.45 billion in new financing as pledged by some of its lenders.

That sum will presumably help pay down Rite Aid’s $8.6 billion debt.

Meanwhile the company has appointed a new CEO to oversee the transition. Turnaround expert Jeffrey Stein takes the reins while joining the company’s board and being named chief restructuring officer.

Of the 2,100-plus stores Rite Aid operates in 17 states—employing more than 45,000 associates and 6,100 pharmacists—any number of “underperforming” locations will close, according to a pair of news releases posted Oct. 15.

The closures will “further reduce the company’s rent expense and are expected to strengthen its overall financial performance,” Rite Aid states.

‘Tremendous confidence’

Incoming CEO Stein says he has “tremendous confidence” in the company’s ability to turn things around. He adds that his priorities will include not only strengthening Rite Aid’s financial stance but also driving its “journey to reach its full potential as a modern neighborhood pharmacy.”

Among the court-supervised activities on tap is a to-do item labeled “resolve litigation claims in an equitable manner.”

Numerous press reports have fleshed this out in considerable detail over the past several months.

The lowlights have included a plethora of lawsuits accusing Rite Aid of knowingly filling prescriptions for opioids in quantities that should have raised obvious red flags.

These have only added to the company’s mounting debt, and consistently lackluster retail sales have stymied investors’ hopes for an organic recovery.

‘Perpetual inability’ vs. ‘sufficient liquidity’

The New York Times notes that, not so long ago, Rite Aid was the biggest drugstore chain in the country.

In fact, its market value has fallen from $13 billion in 1998 to less than $40 million this month.

“The company has not been well managed for a very long time,” retail analyst David Silverman of Fitch Ratings tells the Times. “They have been stuck in the perpetual inability to improve their fortune.”

Rite Aid remains outwardly upbeat. The company says it will continue offering products and services to many customers who shop there in stores and online.

Rite Aid adds that the $3.45 billion infusion, coupled with the court-supervised restructuring plan, “is expected to provide sufficient liquidity to support the company throughout this [Chapter 11] process.”