By Dietrich Knauth
NEW YORK (Reuters) – Rite Aid, one of the largest U.S. pharmacy chains, received permission from a U.S. judge on Thursday to begin voting on a bankruptcy restructuring plan that would turn over most of the company’s equity to its bondholders, while still leaving open the possibility of a sale.
U.S. Bankruptcy Judge Michael Kaplan approved Rite Aid’s voting proposal at a court hearing in Trenton, New Jersey, saying that the bankruptcy case needed to move quickly to avoid further restructuring costs that could push the company into liquidation.
“Every day engenders additional cost and risk,” Kaplan said. “We just don’t have the luxury of kicking this can down the road any more.”
The company filed for bankruptcy in October, seeking to address its high debt, shut down underperforming retail locations, and sell off non-core business units.
Rite Aid’s bankruptcy plan, revised on Thursday, would cut $2 billion in debt and provide $47.5 million to junior creditors, including individuals and local governments who have sued the company for allegedly ignoring red flags and illegally filling prescriptions for addictive opioid medication.
Rite Aid, which has denied wrongdoing, is still finalizing some of the settlements that are critical to the restructuring, including an agreement that would resolve a U.S. Department of Justice investigation into Rite Aid’s opioid sales.
But lawyers for the company said it is ready to solicit votes from bondholders, who are the critical voting class in its bankruptcy.
No other group will be entitled to vote in Rite Aid’s bankruptcy, and the bondholders’ votes are due on April 15.
Kaplan said Rite Aid’s voting proposal was “unusual,” because it did not allow any votes from creditors who are last in line for repayment.
But he agreed with Rite Aid’s conclusion that the company would not have enough money to pay those creditors after paying higher-priority debt including bank loans and bonds.
Rite Aid said in court papers that junior creditors would be receiving $47.5 million as a “gift,” which would not have been possible without the settlements with higher-priority creditors.
Attorneys representing Rite Aid’s junior creditors, including its opioid creditors, said that they supported the settlements and they did not object to their clients’ inability to vote in the bankruptcy.
“The plan initially said that unsecured creditors are getting nothing,” said Arik Preis, an attorney representing opioid victims in the case. “We’re now getting quite a bit.”
Rite Aid and its creditors have not yet determined how the $47 million allotment to junior creditors will be divided between opioid victims and other creditors.
Junior creditors will also receive a 10% equity stake in the reorganized Rite Aid, as well as the ability to pursue additional recoveries through further litigation or insurance payouts.
Bondholders are still interested in exploring a sale of the company, and Rite Aid’s revised bankruptcy plan allows those negotiations to continue in parallel with the restructuring, according to Andrew Rosenberg, an attorney for bondholders including include Brigade Capital Management, HG Vora Capital Management, and J.P. Morgan Investment Management.
“The sales process is ongoing with multiple active and engaged bidders,” Rosenberg said at the hearing.
Rite Aid expects to seek final court approval of its restructuring on April 22. It received bankruptcy court approval to sell its pharmacy benefit company, Elixir, in January.
(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi and Costas Pitas)
