CASE SUMMARY: Rite Aid Says Goal of ‘Chapter 22’ is Going-Concern Sale; ABL Lenders to Fund Case With $1.94B DIP; Prescriptions ‘Most Valuable Asset’

New Rite Aid LLC and dozens of affiliates filed chapter 11 petitions in the District of New Jersey on May 5, 248 days after the pharmacy and drugstore operator emerged from its prior chapter 11 reorganization in the same court. The company “intends to achieve value-maximizing sales of stores and/or prescriptions,” according to the first day declaration of Chief Transformation Officer Marc Liebman of Alvarez & Marsal.

Rite Aid proposes a $1.94 billion senior secured superpriority DIP facility from its prepetition ABL lenders, made up of a $1.7 billion asset-based revolving credit facility and a $240 million DIP first-in, last-out, or FILO, term loan facility.

The debtors seek approval of bidding procedures to govern the sale of their assets, highlighting that their prescription files are their most valuable asset. The sale would proceed on an expedited timeline in two phases, with the pharmacy assets to be sold first and then nonpharmacy assets (plus any unsold pharmacy assets remaining from the first phase). The debtors will separately undertake store closing sales at certain locations.

The DIP facility requires the debtors to hold auctions (if any) by May 14 (for pharmacy assets) and June 20 (for remaining assets), and secure sale approval orders by May 21 (for pharmacy assets) and June 25 (for remaining assets).

“The Debtors’ prepetition marketing process resulted in six indications of interest for various parts of the Debtors’ businesses, along with one indication of interest for the combined purchase of substantially all of the Debtors’ prescription files and certain parts of their inventory,” the debtors say. According to the debtors, the seven potential purchasers include “a combination of national and regional retail pharmacy, grocery store, and general retail companies.”

Liebman says that Rite Aid sold or wound down approximately 800 underperforming stores across the country during the 2023 bankruptcy and closed an additional 29 stores since emergence. The debtors have entered into purchase agreements with buyers of prescription files for over 60 stores that they intend to consummate in chapter 11. Approximately 50 stores are expected to close with no prescription sales, and an additional 275 stores “have or will have asset purchase agreements for regional transactions in process.”

The company blames its rapid return to bankruptcy court on “unforeseen challenges that significantly impaired” its nonpharmacy “front-end” business, including vendors’ refusal to return to less restrictive pre-bankruptcy payment terms after emergence and ABL lenders’ refusal to provide letter of credit facilities “crucial to Rite Aid’s recovery.”

The first day hearing is scheduled for Wednesday, May 7, at 2 p.m. ET.

The case has been assigned to Judge Michael B. Kaplan (case No. 25-14861), who also handled the company’s first chapter 11. The debtors are advised by Paul Weiss and Cole Schotz as bankruptcy counsel, Guggenheim Securities as investment banker, Alvarez & Marsal as financial advisor and A&G Realty Partners as real estate consultant.

Prepetition Capital Structure

Liebman says that the debtors have approximately $2.161 billion in aggregate funded debt outstanding.

A breakdown of the company’s prepetition capital structure is below:
 

Prepetition ABL Facility and FILO Term Loan

The $1.9 billion ABL facility, reduced from $2.25 billion as part of the first amendment, and $240 million FILO term loan are secured and guaranteed by first-priority liens on substantially all personal and real property of substantially all of Rite Aid Corp. and its subsidiaries, including each of the debtors.

Rite Aid’s prepetition ABL facility was subject to a borrowing base formula whereby the facility’s availability was the minimum of either the $1.9 billion in commitments or the company’s net orderly liquidation value.

The ABL had a daily cash sweep feature that swept all cash received by the company into an account designated for ABL repayment. As a result, the company heavily relied on the ABL for day-to-day liquidity. The borrower, Rite Aid Corp., was also subject to a minimum borrowing availability of $225 million (the stated amount upon emergence from the previous chapter 11 cases).

An illustration of the company’s collateral availability (gray), compared with the excess availability (solid black line), and the amended excess availability requirement (dotted red line), is shown below:
 

The prepetition credit facilities mature on Aug. 30, 2028.

Senior Secured Notes

Rite Aid Corp. issued three tranches of senior secured notes, collectively referred to as the senior secured notes:
 

• $78.3 million of floating rate senior secured PIK notes due 2031, referred to as 1.5 lien notes. The balance as of the petition date is $83 million.
   
• $375 million of third lien notes consisting of:
   
  • $225 million of 15% third-priority Series A senior secured PIK notes due 2031. The balance as of the petition date is $242 million.
  • $125 million of 15% third-priority Series B senior secured PIK notes due 2031. The balance as of the petition date is $35 million. The Series B notes are subordinated in right of payment to the Series A notes.

The senior secured notes are guaranteed by substantially all of Rite Aid Corp.’s subsidiaries, including each subsidiary that is a debtor.

The 1.5 lien notes, which are junior to the prepetition credit facilities, are secured by substantially all personal and real property of Rite Aid Corp. and its subsidiaries, including each debtor.

The third lien notes are secured by third-priority liens on the prepetition collateral, which includes substantially all personal and real property of Rite Aid Corp. and its subsidiaries, including each of the debtors. The third lien notes are junior to the liens securing the prepetition credit facilities, the 1.5 lien notes and the McKesson obligations.

McKesson Obligations

The McKesson obligations are secured by substantially all personal and real property of Rite Aid Corp. and its subsidiaries, including each debtor. The McKesson obligations rank senior to the third lien notes and junior in priority to the prepetition credit facilities and the 1.5 lien notes. The outstanding amount of these obligations is not provided.

The debtors list McKesson as holding contingent unliquidated claims on the petition’s list of largest unsecured claim holders.

1970 Group Letter of Credit

According to the declaration, Rite Aid Corp. is responsible for $66.75 million in letters of credit issued by the 1970 Group, an arranger of letters of credit supported by third-party financial institutions. The letter of credit is guaranteed by substantially all of Rite Aid Corp.’s subsidiaries, including all debtors.

Background / Events Leading to Bankruptcy Filing

Liebman says that Rite Aid’s corporate roots date to 1962, when it began as a single discount drug store in Scranton, Pa., operating with the name of Thrif D Discount Center. By 1968, Liebman says, Rite Aid went public on the American Stock Exchange. It grew to the third-largest retail drug chain in the country by 1981, according to Liebman.

Rite Aid’s organizational chart can be found HERE.

The Rite Aid business model relies on “two separate, but symbiotic functions,” Liebman says. Its prescription drug business employs pharmacists to serve customers’ pharmaceutical needs. Rite Aid depends on those same customers to drive its “front-end” retail business, which offers nonprescription products, such as health and beauty products and convenience items.

Rite Aid has primarily relied on its partnership with McKesson Corp. to fulfill its prescription drug requirements. It entered into a new supply agreement with McKesson after it emerged from its 2023 chapter 11 cases, Liebman says. Under the agreement, Rite Aid purchases almost all of its pharmaceutical products from McKesson, according to Liebman.

Rite Aid used to operate a pharmacy benefit manager business, or PBM business, out of its “Elixir” entities, Liebman says, but during its 2023 cases it sold the Elixir business to MedImpact for $575 million. MedImpact is appealing a decision that resolved a $275 million post-Elixir sale dispute in Rite Aid’s favor.

Rite Aid first filed for chapter 11 in the District of New Jersey on Oct. 15, 2023. Liebman says that at the time of filing, the company had $4 billion in funded debt, costing the company about $200 million a year in debt service obligations. The company filed its 2023 chapter 11 case to right-size its balance sheet and exit underperforming leases.

Liebman recounts that the chapter 11 case was fraught with conflict. “[T]he 2023 Cases proved to be extremely complex and contentious, and involved numerous counterparties with competing interests that each vigorously negotiated for the best possible treatment during a protracted mediation process. At several points in time, it appeared that a global consensual path forward did not exist,” he says.

Liebman, however, says that the debtors ultimately confirmed a plan with the support of 99.73% of voting creditors. Through the plan, according to Liebman, Rite Aid set up trusts to hold causes of action, insurance rights and cash for the benefit of creditors. In addition, 90% of new equity interests were issued by Rite Aid HoldCo to the company’s prepetition noteholders and 10% of new equity interests were issued to a trust for the benefit of general unsecured creditors. Liebman says that junior DIP claims – held by prepetition secured second lien noteholders – were rolled into exit 1.5 lien notes. Prepetition second lien noteholders also received third lien notes, Liebman says.

Liebman says that the plan included a waterfall provision to distribute proceeds from significant 2023 receivables due from the Centers for Medicare & Medicaid Services to various parties. The plan also provided for the global resolution of tort liability through a channeling injunction, tying tort claimants’ recoveries to the success of a litigation trust. Finally, Liebman says, the plan included a global settlement with McKesson, which provided McKesson with a second-priority lien on substantially all of the debtors’ property to secure the debtors’ obligations under the new McKesson supply agreement.

Liebman says that Rite Aid sold or wound down approximately 800 stores during its 2023 cases – including substantially all of its stores in Michigan and Ohio.

The company emerged from its first chapter 11 case in August 2024 with a business plan that assumed two things, according to Liebman: that Rite Aid’s front-end vendors would offer better payment terms and that the company would be able to negotiate letter of credit facilities that would provide crucial liquidity.

Neither of those assumptions proved true, however. Liebman says that the company obtained “materially less” letters of credit than expected and that “many vendors did not relax their restrictive payment terms at anticipated levels.” For instance, Liebman says that the company expected to emerge from the 2023 cases with about $166 million in liquidity from letters of credit but only obtained a letter of credit facility for $66.75 million. Further, Rite Aid’s deteriorating financial condition caused McKesson to tighten credit terms, Liebman says.

The inability to procure sufficient liquidity through letters of credit and the continued insistence by vendors for restrictive payment terms – such as cash on delivery – impaired Rite Aid’s ability to stock its front-end business, Liebman says. In addition, macroeconomic pressures, such as lower consumer spending, strained vendor relations, inventory challenges and competitive pressures – left Rite Aid unable to service debt obligations in the ordinary course, according to Liebman. Liebman says that since November 2024, the company has only generated negative adjusted EBITDA.

According to Liebman, in early 2025, the company was at risk of breaching a minimum ABL availability covenant. The company was able to amend its ABL facility to free up incremental liquidity, according to Liebman, but he says “the financial reprieve” was “short lived.” The incremental liquidity was insufficient to restock front-end inventory or convince trade creditors to normalize trade terms, Liebman adds.

On Feb. 24, Liebman says that the company breached its modified minimum ABL availability covenant. Facing the possibility of the ABL lenders exercising enforcement remedies, Liebman says that the company and its ABL lenders executed a series of consents that allowed Rite Aid to develop a business rationalization plan and implement a comprehensive sale and marketing process for its business and assets.

Liebman says that the company hired restructuring advisors in March and hired three independent directors with restructuring expertise – Tim Pohl, Michael Wartell and Scott Vogel. On April 3, Liebman says, it entered into an agreement with a joint venture formed between Hilco Merchant Resources and SB360 Capital Partners to receive asset divestment and monetization advisory services.

Liebman says the chapter 11 cases follow a prepetition marketing process that the company began in March with the assistance of its investment banker, Guggenheim Securities. According to Liebman, Rite Aid’s prescriptions are its most valuable asset, and Rite Aid has already signed purchase agreements for its prescription files at more than 60 store locations. Liebman adds that there are also about 50 store locations planned for closure with no expected prescription sales and 275 store locations that have or will have asset purchase agreements for regional transactions in process.

The debtors’ largest unsecured creditors are as follows:
 

10 Largest Unsecured Creditors
Creditor	Location	Claim Type	Amount
Ace American Insurance Co.	Philadelphia	Insurance Claim	$   87,421,089
Department Of Justice	Washington	Plan Payment Claim	49,000,000
AmerisourceBergen Drug Corp.	Conshohocken, Pa.	Trade	29,850,072
UFCW Local 8-Golden State	Roseville, Calif.	Union Claim	19,501,087
United Food and Commercial Workers Local 1167	Bloomington, Calif.	Union Claim	18,672,466
Google Inc.	Mountain View, Calif.	Trade	18,315,913
Chattem Inc.	Chattanooga, Tenn.	Trade	12,698,496
HCL America Inc.	Sunnyvale, Calif.	Trade	11,191,439
32-14 31st Food LLC	New York	Lease Rejection Damage Claim	9,405,233
PriceWaterHouseCoopers LLP	New York	Trade	7,950,923

The case representatives are as follows:

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