In a bid to combat financial woes exacerbated by the opioid pandemic and streamline operations, longstanding US pharmacy chain Rite Aid has officially filed for bankruptcy. The move seeks to address a debt burden that looms at approximately $4 billion, along with impending litigation surrounding its involvement in the opioid crisis.
Originating as a lone drugstore in Scranton, Pennsylvania back in 1962, the company now boasts an extensive network of over 2,000 locations, employing a workforce of 45,000 nationwide. As part of the bankruptcy proceedings, the pharmacy benefit management division, Elixir, is set to be divested.
Even prior to the pandemic, Rite Aid grappled with a mounting debt load, prompting strategic measures like the closure of 200 underperforming outlets and forays into sale-leaseback agreements. To bolster its financial standing amidst bankruptcy, Rite Aid secured financing arrangements and brokered a deal that saw Elixir slated for acquisition by PBM heavyweight MedImpact Healthcare Systems Inc., for a cash consideration of $575 million plus associated liabilities.
Legal entanglements regarding its role in the opioid crisis are also on Rite Aid’s docket. The US Department of Justice contends that the company knowingly dispensed hundreds of thousands of illicit prescriptions for controlled substances. This development follows precedent-setting settlements inked by industry giants CVS Health Corp. and Walgreens Boots Alliance Inc., who collectively committed to a staggering $10 billion payout.
At the helm of Rite Aid’s restructuring efforts is newly appointed Chief Executive Officer and Chief Restructuring Officer Jeffrey Stein, a seasoned professional in navigating the turnaround of distressed enterprises. The company estimates its creditor base to exceed 100,000, with the preeminent unsecured, non-insider creditor identified as McKesson Corp., wielding approximately $667.6 million in trade-payable claims.
The bankruptcy petition was officially lodged in Trenton, New Jersey, and the inaugural court hearing has been slated for 1 p.m. on Monday. In a bid to mitigate rental expenses, Rite Aid is forging a partnership with A&G Realty Partners to expedite the closure of additional storefronts.
In the face of seismic shifts in consumer behavior prompted by the pandemic, from a shift towards online pharmaceutical purchases and home delivery, Rite Aid endeavors to navigate these turbulent waters. The success of the company’s restructuring efforts remains a matter of conjecture, but the ensuing months will undeniably prove pivotal in shaping the trajectory of this venerable pharmacy chain’s future in the US market.
Source: Bloomberg
