Rite Aid Prepares Bankruptcy That Would Halt Opioid Lawsuits

Rite Aid is preparing to file for bankruptcy in coming weeks to address mass federal and state lawsuits the drugstore chain is facing over its alleged role in the sale of opioids, according to people familiar with the company’s plans.

The chapter 11 filing would cover Rite Aid’s more than $3.3 billion debt load and pending legal allegations that it oversupplied prescription painkillers, the people said. Philadelphia-based Rite Aid hasn’t agreed on a settlement with federal, state government and private opioid plaintiffs to resolve those opioid liabilities in a potential chapter 11 and is currently planning to treat them as general unsecured claims, they said.

A representative for Rite Aid didn’t respond to a request for comment. Its restructuring counsel at law firm Kirkland & Ellis also didn’t respond.

Unsecured claims rank behind a company’s collateralized debt in bankruptcy and share in the amounts left over after secured claims are paid in full. The terms offered to Rite Aid’s opioid-related claimants in a potential chapter 11 could change, the people said.

Rite Aid faces more than a thousand federal lawsuits that were consolidated into a multidistrict litigation in Ohio. The company also faces a significant number of similar cases pending in state courts that allege it contributed to the opioid epidemic, as well as a civil lawsuit by the Justice Department that alleges the company dispensed controlled substances in violation of the False Claims Act and Controlled Substances Act.

Rite Aid has asked a court to dismiss the department’s lawsuit and denied the allegations that it filled unlawful prescriptions for controlled substances. A bankruptcy filing would put those lawsuits on hold and open a path for Rite Aid to resolve them in a single forum.

Rite Aid is expected to join pharmaceutical manufacturers Purdue Pharma, Mallinckrodt and Endo International as companies bankrupted by opioid litigation. Purdue, Mallinckrodt and Endo each reached settlements of their opioid claims in bankruptcy, worth an aggregate total of more than $8 billion, that allocated more to opioid plaintiffs than to other unsecured creditors.

Much of that money, however, hasn’t been paid as the companies work through legal and financial challenges using chapter 11. Purdue’s $6 billion settlement with members of the Sackler family who own the company has been put on hold by the Supreme Court, which is reviewing whether the chapter 11 plan is legally flawed. Mallinckrodt promised $1.7 billion to opioid plaintiffs when it restructured in chapter 11 last year, but is now headed toward a repeat bankruptcy that would leave roughly $1 billion of that pledge unpaid. Endo also is facing government objections to its plan to pay $450 million to state governments and $119 million to private plaintiffs over time.

Rite Aid from 2015 to 2018 tried unsuccessfully to merge with Walgreens Boots Alliance and later Albertsons, in efforts to improve its capital position and enhance its pharmacy footprint. It has warned for years of not having sufficient cash flow to service its debt and owed over $3.3 billion to lenders and bondholders as of June, according to securities filings.

The company’s cash has dwindled recently. Its revenue declined 6% in the last quarterly period ended June 3 from the comparable period last year, while its net loss nearly tripled to $307 million, according to a securities filing. Rite Aid’s cash and cash equivalents shrank to $136 million, down from $157 million in March.

The company’s stock price fell 51% Friday to 71 cents a share.

Write to Alexander Gladstone at [email protected], Andrew Scurria at [email protected] and Jodi Xu Klein at [email protected]