Rite Aid is reportedly on the brink of initiating a bankruptcy filing within the upcoming weeks as part of its strategy to restructure its outstanding debt and potentially put a halt to the ongoing barrage of legal actions.
This move is said to be a strategic maneuver aimed at addressing the extensive array of federal and state lawsuits that Rite Aid is currently facing due to its alleged involvement in the opioid crisis. Initially disclosed by The Wall Street Journal on a recent Friday, the company is purportedly considering a Chapter 11 filing, encompassing its substantial debt load of $3.3 billion as well as the pending legal accusations. It’s worth noting that these plans remain fluid and could evolve over time.
Up to this juncture, Rite Aid has not reached a resolution with the plaintiffs who assert that the company improperly dispensed hundreds of thousands of opioid prescriptions. This prospective bankruptcy declaration is anticipated to temporarily suspend the numerous legal claims that have been levied against the company, allowing for a centralized resolution process. Essentially, the intent is to streamline the legal proceedings and address them cohesively.
Responding to inquiries from Fierce Healthcare on the following Monday, a spokesperson for Rite Aid issued a concise statement: “We do not comment on rumors and speculation.”
Reports indicate that Rite Aid is currently grappling with over a thousand federal lawsuits, which have been consolidated, alongside several state-level cases and a civil lawsuit initiated by the Department of Justice. In response to the lawsuit from the Justice Department, Rite Aid has sought dismissal and has staunchly denied any allegations concerning the improper fulfillment of unlawful painkiller prescriptions.
Comparable to Purdue Pharma, Mallinckrodt, and Endo International, all of which underwent bankruptcy proceedings due to opioid-related litigations, Rite Aid’s strategy appears to emulate the precedent set by these companies. They all ultimately reached settlements for their opioid claims during bankruptcy, aggregating to a sum exceeding $8 billion. Nevertheless, the practicality of these settlements has been hampered by the complexities of the bankruptcy process, leading to many outstanding obligations.
Rite Aid’s financial performance, as reported in its quarterly results for June, exhibited a significant net loss of $306.7 million, nearly tripling the loss recorded during the corresponding period of the previous year. Moreover, the company’s revenue contracted from $6 billion to $5.7 billion year-on-year. Adding to its financial struggles, CreditRiskMonitor has identified Rite Aid as being in the “red zone,” signifying that its susceptibility to bankruptcy is up to 50 times higher than the average for public companies.
A historical backdrop reveals that Rite Aid’s prior merger endeavors were met with adversity. In 2017, the planned merger between Rite Aid and Walgreens Boots Alliance was terminated. The subsequent year, a $24 billion merger plan between Rite Aid and Albertsons met a similar fate.