Rite Aid files for bankruptcy, facing $3.3B in debt and opioid lawsuits
On Sunday, the pharmacy chain announced that it has filed for bankruptcy and obtained $3.45 billion in fresh financing as it carries out a restructuring plan while coping with falling sales and opioid-related lawsuits.
Rite Aid, the nation’s third-largest pharmacy chain, has filed a Chapter 11 bankruptcy filing on Sunday.
Hobbled by $3.3 billion in debt, declining revenue and potentially massive opioid legal liabilities, the 61-year-old, Philadelphia-based company has filed in an effort to close unprofitable stores. The pharmacy has announced that is has received a commitment for $3.45 billion in new financing.
Rumors have swirled for weeks that the company was plotting a bankruptcy filing, though the company had told Law.com that no decision has been made. “Rite Aid is continuing to work collaboratively and constructively with our financial stakeholders to identify the best path forward to reduce our debt and position the business for continued success,” spokeswoman Alicja Wojczyk Sr. said.
The path out of bankruptcy involves reaching a manageable resolution to the more than 1,000 consolidated federal and state lawsuits alleging Rite Aid pharmacies improperly dispensed prescription opioids to its customers, contributing to addictions and deaths.
The legal heat on Rite Aid escalated in March, when the Department of Justice filed a civil suit based on information from whistleblowers alleging the company filled prescriptions with obvious red flags and intentionally deleted internal notes about suspicious prescribers.
The company has responded to the suits by declining to comment or by stating that it is defending itself against all relevant claims.
“With regard to claims made against Rite Aid by opioid plaintiffs, that’s a gigantic aspect of the general counsel’s duties,” Kenneth Rosen, chair emeritus of Lowenstein Sandler’s bankruptcy practice, told Law.com.
Related: CVS, Walgreens, pharma firms agree to pay $19B in opioid settlement money to states by year’s end
Settlements have left the nation’s No. 1 and No. 2 pharmacy chains, CVS and Walgreens, on the hook for more than $5 billion apiece.
Rite Aid, which began in 1962, became the third largest U.S. chain of drugstores in less than two decades with more than 2,000 retail stores in 17 states. However, the pharmacy has been struggling for years, amid stiff competition from CVS, Walgreens and Walmart. In 2015, Walgreens agreed to buy Rite Aid and the 4,600 stores it had at the time for $17.2 billion. But after regulators raised antitrust concerns Walgreens wound up buying 1,932 Walgreen stores for $4.4 billion.
Three years later a plan to sell the remaining stores to the Albertsons grocery chain unraveled.
CVS and Walgreens, neither of which is facing a high bankruptcy risk, have opted for extended payment terms to pay opioid settlements over time —10 years for CVS and 15 for Walgreen.
It’s unfortunate that the many customers that count on Rite Aid for their medications might not have alternative pharmacies they can go to instead, Rob Chesnut, a former general counsel and former chief ethics officer at Airbnh, said.
The tasks at hands are far too numerous for Thomas Sabatino Jr., chief legal officer of Rite Aid, to handle himself, which means he will rely extensively on outside counsel.
According to The Wall Street Journal, the company has tapped Kirkland & Ellis to usher it through bankruptcy.