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Rite Aid has reached key agreements with stakeholders, advancing its “Rite 2.0” restructuring plan.


Rite Aid counsel from Kirkland & Ellis announced to Judge Michael Kaplan of the Bankruptcy Court for the District of New Jersey today that the debtor has reached agreements in principle on all key economic points with all key stakeholders, including McKesson and the DOJ.

Debtor’s counsel made clear to the court that these resolutions will not materially impact the plan and disclosure statement, and the debtor will be pursuing its restructuring, dubbed “Rite 2.0.” To achieve the final resolution reached during mediation with Judge Chapman (Ret), the disclosure statement hearing will be pushed to March 28 at 11:00 ET, with any amendments to be filed over the next few days reflecting the settlement.

Paul Weiss, representing the 2L ad hoc group of creditors, agreed with the progress made today at the hearing, but indicated that there are still critical process details to be ironed out between the ad hoc 2L creditors and the debtor.

Contemporaneously with filing bankruptcy on October 16, Rite Aid filed an adversary proceeding against McKesson over a terminated supply agreement. McKesson supplies up to 98% of Rite Aid’s prescription and over-the-counter drugs leading to a $667mn administrative claim. The parties resolved the adversary proceeding with a settlement that includes granting McKesson super-priority administrative status and a shorter turnaround. However, outside a settlement with Rite Aid in terms of the chapter 11 plan, the size of the $667mn administrative claim has the potential to render Rite Aid administratively insolvent.

Under the Rite Aid 2.0 restructuring plan, senior secured noteholders are poised to assume control of the post-restructured company. The 7.5% senior secured notes due 2025 and 8% senior secured notes due 2026 are set to receive 100% of the reorganized company’s common stock, subject to dilution, which includes a share in a GUC equity pool and potential participation in a takeback debt facility.

Other senior secured debts, including the $3.45bn DIP facility, are to be paid in full, emerging unimpaired from the restructuring process. Once those claims are satisfied, general unsecured creditors are set to gain interests in a GUC equity trust. This trust is designed to hold a portion of the new common stock, the calculation of which depends on the value of certain fee-owned, previously unencumbered real estate assets. Despite this provision, the disclosure statement stipulates there is no assurance that the GUC trust will yield any recovery for unsecured creditors.

Time is a critical factor, echoed by Judge Kaplan, as the debtor is projecting total restructuring costs (without considering fees of the committees) of close to $400mn.


Jennifer Lappe, J.D.
Legal Analyst
LevFin Insights



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