Rite Aid files for bankruptcy with DIP, creditor agreement-in-principle in place

Rite Aid Corporation filed for Chapter 11 bankruptcy protection on Oct. 15 after recent store closings, real estate sale leaseback transactions, and debt exchange/tender offers were not enough to stem a long operational slide. The company has also been wrestling with over 1,600 opioid-related lawsuits, according to its public filings.

The move into bankruptcy, in the District of New Jersey bankruptcy court, was accompanied by an “agreement in principle” with an ad hoc secured noteholder group, the company said. Rite Aid expects the agreement to be converted into a restructuring support agreement (RSA) with holders of at least 66.67% of the outstanding secured notes “in the coming days,” according to a Form 8-K filing.

Also on Oct. 15, Rite Aid announced that Jeffrey S. Stein was being installed as CEO, chief restructuring officer, and a member of the board of directors. He succeeds Elizabeth Burr, who had been interim CEO since Jan. 2023, and who will remain a board member.

Rite Aid filed for Ch. 11 with around $4 billion in outstanding secured and unsecured debt. The secured debt includes a $2.2 billion outstanding under its ABL facility (plus $237 million in letters of credit under the $2.85 billion facility), a $400 million FILO term loan facility, $320 million of 7.5% notes due 2025, $850 million of 8% notes due 2026, and $18 million in finance leases.

The unsecured debt is comprised of two unsecured note tranches: $186 million in 7.7% notes due 2027 and $2 million in 6.875% notes due in 2028. At the filing date, Rite Aid also had $134 million of balance sheet cash.

A group of current lenders is providing $3.45 billion in debtor-in-possession (DIP) financing, which Rite Aid said it believes will be enough to see it through the bankruptcy case.

Specifically, Rite Aid obtained a senior secured asset-based credit facility that includes a $2.85 billion revolver and a $400 million first-in, last-out (FILO) facility and a $200 million, 12-month debtor-in-possession term loan A. These facilities will mature in 12 months.

Pricing on the revolver opens at S+325, while pricing on the FILO tranche opens at S+525. Pricing on the term loan opens at S+750. Pricing also includes a 10 bps CSA.

The ABL credit agreement will be used to repay outstanding loans under the pre-petition credit facility and for working capital. Proceeds from the term loan are also earmarked for working capital.

BofA Securities, Wells Fargo Securities, Capital One, BMO, Fifth Third, MUFG, PNC Capital Markets, Truist Securities, and ING Capital acted as joint lead arrangers and joint bookrunners on the revolver and FILO. Meanwhile, BofA Securities, Capital One, Wells Fargo, PNC, BMO, and Truist acted as joint lead arrangers and joint lead bookrunners on the term loan. Bank of America is administrative agent on both credit agreements.

In December, Rite Aid had obtained an amendment increasing the size of its ABL by $50 million, to $2.85 billion, and its FILO senior secured term loan to $400 million, from $350 million.

Rite Aid said that as part of its restructuring, it will sell its non-debtor Elixir Solutions pharmacy benefits and services operation. MedImpact Healthcare Systems Inc. has made a stalking horse bid as part of a sale process that will be conducted under section 363 of the bankruptcy code. The company said it has been seeking buyers for Elixir since the summer of 2023.

The company's proposed timeline for the Elixir sale includes a bid deadline of Nov. 17, an auction on Nov. 29, and a sale hearing on Dec. 8.

Rite Aid also intends to sell its retail business, with a group of secured noteholders initially credit-bidding for it. A timeline for that sale includes an auction on Dec. 15, and a disclosure hearing on Jan. 8, 2024 on an updated reorganization plan and disclosure statement that reflects the auction results.

The overall case timeline anticipates approving the company's disclosure statement by Jan. 14, 2024 and entering the case's confirmation order by Feb. 19, 2024.

The contemplated RSA is expected to include terms such as full repayment of the ABL and FILO loans (unless they are rolled into exit financing), repayment of the term loan, and the issuance of 100% of post-reorg Rite Aid’s common stock to the secured noteholders, subject to dilution for a management incentive plan and for an as-yet-undetermined amount of an “equity-link instrument” to be issued to unsecured noteholders.

Rite Aid has engaged Guggenheim Securities LLC as advisor since December 2022 and counsel Kirkland & Ellis LLP since April 2023. Alvarez & Marsal was brought on in May of this year.

At the time of the bankruptcy filing, Rite Aid operated more than 2,100 drugstores in 17 states, as well as Elixir.

This article originally appeared on PitchBook News