💊New Chapter 22 Bankruptcy Filing - Rite Aid Corporation💊
Retail pharmacy badly misses projections, files to sell for parts.
Keeping up with ‘25’s big-law-dumpster-fire theme, after an eight-month break, on May 5, 2025, Rite Aid Corporation (“Rite Aid”), New Rite Aid, LLC (“New Rite Aid”), and – g*ddamn, y’all – 116 affiliates (collectively, together with Rite Aid and New Rite Aid, the “debtors”)* doubled down on their commitment to the District of New Jersey and Judge Kaplan by filing new bankruptcy cases. We covered Rite Aid’s ‘23 cases extensively, so we’ll skip the details on the pharmacies and busted front-end retailer “business” here and get right into pie-in-the-sky projected vs. actual performance.**
Under the debtors’ prior disclosure statement, they expected to generate $453mm in EBITDA from March ‘24 to February ‘25 after slimming down their debt stack “by more than $2 billion.” Here’s Alvarez & Marsal North America, LLC’s Marc Liebman, who moonlights as the debtors’ chief restructuring transformation officer, telling us how they did:
“Since November 2024, the Company has only generated negative adjusted EBITDA…”
LOL, not even the courtesy of a figure.
Just “negative.”
Great job on those “data-driven projections,” y’all.
The debtors blame their predicament on “certain” lenders, which delayed or walked away “from earlier assurances…” — not binding agreements — “… regarding the terms and timing of replacement facilities,” and front-end vendors for not “return[ing] to their less restrictive prepetition payment terms.” But. COME. ON. You can’t fault the vendors when the debtors “expected to emerge from the 2023 Cases with approximately $166 million in liquidity from letters of credit” and only managed to scrounge up $66.75mm under a single replacement facility. We sure as sh*t wouldn’t have loosened terms either.
In any event, and as if you need us to tell you, “[t]he liquidity benefits that this facility provided were too little and too late for the Company to meet its financial projections.”
So a prescription for a second round of 11 it is.*** And the debtors’ claims agent, Kroll, which thankfully did us all the courtesy of distinguishing between filings …
… summarizes the debtors’ strategy better than we could have:
“Rite Aid is using the Chapter 11 process to pursue a sale of its prescriptions, pharmacy and front-end inventory, and other assets. Any operations or assets the Company does not sell through this process will no longer be owned or operated by Rite Aid.”
So unlike Harvest Sherwood ☝️, this one is exactly what it looks like: a biglaw employment act to wind down the business. And no pussyfooting around either; these debtors are getting sold or chopped up and parted off fast. On an aggressive as f*ck, 51-day timeline.
But at least the jedi-masters of liquidating-11s at Paul, Weiss, Rifkind, Wharton & Garrison LLP (“PW”) have learned a lesson or two from 23andMe because the bidding procedures motion was accompanied by a proactive declaration from special counsel, “Certified Information Privacy Professional” Elise Frejka of Frejka PLLC that digests the debtors’ privacy policies and concludes nothing to see here and no need for a privacy ombudsman.
To fund the sale process, there’s a headline $1.94b DIP, but before we turn to that, let’s take a peek at the cap stack.
And no, the debtors didn’t forget their 2L obligations. Those technically ain’t funded debt and belong to their 20-year-and-99%-dollar-volume-drug-supplier McKesson Corporation (“McKesson”), which agreed to be paid up to $333.8mm under the debtors’ prior, approved plan on account of its claims in that bankruptcy. It received, LOL, $29.2mm in payments, so we’ll chalk that up as a rousing success.
Anyway, back to the DIP, remember we said it was a headline $1.94b facility? Yeah, it’s all headline – there’s a $1.7b DIP revolver, which will interim creep that prepetition ABL before rolling it up entirely on final order and then there’s a $240mm first-in, last-out (FILO) term loan that will replace, on final order, the prepetition FILO facility on final order.****
Not even a cent of new money. Remind us, does an infinite roll-up ratio fall within market these days?
The first-day hearing is scheduled for later today, May 7, 2025, at 2pm ET. We wish the debtors’ ~24,500 employees well.
The debtors are represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP (Andrew Rosenberg, Alice Belisle Eaton, Christopher Hopkins, Sean Mitchell, Alice Nofzinger)***** and Cole Schotz P.C. (Michael Sirota, Warren Usatine, Felice Yudkin, Seth Van Aalten) as legal counsel, Alvarez & Marsal North America, LLC (Marc Liebman) as financial advisor and CRO, Guggenheim Securities, LLC as investment banker (Adam Rifkin),****** and A&G Realty Partners, LLC as real estate advisor.******* Bank of America, N.A. ($BAC), as DIP and Prepetition ABL agent, is represented by some law firm and Greenberg Traurig, LLP (Alan Brody, Julia Frost-Davies) as legal counsel and Berkeley Research Group, LLC as financial advisor. An ad hoc group of prepetition secured noteholders is represented by Kramer Levin Naftalis & Frankel LLP (Rachael Ringer, Adam Rogoff, Megan Wasson) as legal counsel. McKesson is represented by Buchalter, P.C. (Daniel Slate, Jeffrey Garfinkle, Brian Harvey), Sidley Austin LLP (Dennis Twomey, John Kuster), and McManimon, Scotland & Baumann, LLC (Anthony Sodono III, Michele Dudas) as legal counsel. Tim Pohl stuck around for this one and, along with Scott Vogel and Michael Wartell, serves as an independent director at the holdco level.
*Somehow still two lighter than the ‘23 cases.
**If you’re interested in our prior coverage, you can find that, in reverse chronological order, here, here, here, here, here, here, and here.
***We also enjoyed Walter Hickey’s characterization:
And this guy’s:
Annd this guy’s:
****For SOFR loans, the revolver carries interest at term SOFR + 0.1% + 3.25% and the TL carries an interest rate of term SOFR + 0.1% + 5.25%. Moreover, there are fees: the revolver has a 1% PIK upfront fee and the TL’s is 1.5% (also PIK). Both also feature a 10% cash-pay exit fee, waived entirely or reduced if the “DIP” is paid off in 9 months or less. Those all accrue on closing of the facility to deprive any committee of unsecured creditors the ability to contest the prudence of paying ~$20.6mm + whatever the exit is in return for zilch.
*****In case you needed reminding that this isn’t a real chapter 11 debtor case and is merely a liquidation, look no farther than the PW partner with top billing in this one – a real company-side powerhouse right there. PW gets the plum assignment as debtors’ counsel here after “successfully” guiding the ad hoc secured noteholder group comprised of JPMorgan Chase & Co. ($JPM), Brigade Capital Management LP and Sixth Street Partners towards equity ownership in this turd in the first spin around the bankruptcy bin. Riddle us this: after how many liquidating 11s does a big law firm have a branding problem, 🤔? Anyway, likewise, Cole Schotz PC gets another go, though this time with PW rather than Kirkland & Ellis LLP.
******Props to B.Hayes and team for the double dip. The fees for this 51-day-postpetition-run aren’t public yet but the post-haircut $17mm or so they got in the first go-around was obviously money well spent, 🙄. At least Guggenheim is already likely to have CVS Health Corporation ($CVS) and Walgreens Boots Alliance Inc. ($WBA) on speed dial. Any execs get $20mm on the eve of filing this time, 🖕?
*******The debtors also entered into a consulting agreement with a JV formed by SB360 Capital Partners, LLC and Hilco Merchant Resources, LLC, “pursuant to which the Consultants provide certain asset divestment and monetization advisory services.” GOB sales, clearly.
Company Professionals:
Legal: Paul, Weiss, Rifkind, Wharton & Garrison LLP (Andrew Rosenberg, Alice Belisle Eaton, Christopher Hopkins, Sean Mitchell, Alice Nofzinger) and Cole Schotz P.C. (Michael Sirota, Warren Usatine, Felice Yudkin, Seth Van Aalten)
Financial Advisor and CRO: Alvarez & Marsal North America, LLC (Marc Liebman)
Investment Banker: Guggenheim Securities, LLC (Adam Rifkin)
Independent Directors: Tim Pohl, Scott Vogel, Michael Wartell
Claims Agent: Kroll (Click here for free docket access)
Other Parties in Interest:
DIP and Prepetition ABL Agent: Bank of America, N.A. ($BAC)
Legal: Some law firm and Greenberg Traurig, LLP (Alan Brody, Julia Frost-Davies)
Financial Advisor: Berkeley Research Group, LLC
Ad Hoc Group of Prepetition Secured Noteholders:
Legal: Kramer Levin Naftalis & Frankel LLP (Rachael Ringer, Adam Rogoff, Megan Wasson)
McKesson Corporation:
Legal: Buchalter, P.C. (Daniel Slate, Jeffrey Garfinkle, Brian Harvey), Sidley Austin LLP (Dennis Twomey, John Kuster), McManimon, Scotland & Baumann, LLC (Anthony Sodono III, Michele Dudas)