Rite Aid has hired claims agent Kroll Restructuring Administration as the debt-saddled retail drugstore chain prepares for a likely bankruptcy filing in the coming weeks, said two sources familiar with the situation.
The Camp Hill, PA-based company is facing a trio of pressure points including a slew of opioid-related lawsuits, weak earnings and upcoming maturities totaling over USD 3bn.
As such, the retail drugstore has hired Kirkland & Ellis as legal counsel, while a group of secured bondholders are working with Paul Weiss and Evercore, as reported.
A portion of Rite Aid’s secured debt is due in 2025 and 2026, followed by two tranches of unguaranteed senior notes due 2027 and 2028. Rite Aid also faces a springing maturity on its revolver and term loan if its USD 320m 7.5% second lien senior secured notes due 2025 are not repaid or refinanced prior to 1 April 2025. The company’s liquidity stood at USD 1.2bn as of June 3, including USD 136m in cash and the USD 1bn revolver.
Besides accusations of letting pharmacists distribute controlled substances, including opioids, Rite Aid is also grappling with legal actions related to employment laws, prescription drug overcharges, Medicaid program non-compliance, and consumer protection law violations. Several pharmacy chains have already settled similar cases for substantial amounts, reaching into the billions. One such company is CVS Health, which resolved all opioid-related lawsuits and claims in 2022, resulting in a USD 5bn settlement payable over a decade, as noted in a Debtwire report.
“We believe Rite Aid is unlikely to satisfy its obligations in full and on time given weak performance and potentially substantial settlement claims,” wrote S&P Global Ratings analysts in a downgrade report at the end of August. The agency lowered the company’s rating to CCC- from CCC+ noting that its capital structure is unsustainable due to falling sales and high leverage above 8x.
Rite Aid’s adjusted EBITDA in fiscal 1Q24 declined 8% YoY to USD 92m due to lower revenue. For FY24, adjusted EBITDA is expected to be in the range of USD 330m – USD 360m, a 20% YoY reduction.
Rite Aid’s USD 320m 7% second lien notes due 2025 last traded at 60 on 21 September, while its USD 850m 8% second lien notes due 2026 traded today at 59.7, according to MarketAxess.
Its stock is down 3.4% today to USD 0.61 for a market capitalization of USD 34.6m. The stock is down 91.3% year-to-date.
Kroll and Rite Aid did not return requests for comment.
