Rite Aid files bankruptcy, lines up $3.45 billion in DIP financing

By Sarah Lizee

Olympia, Wash., Oct. 16 – Rite Aid Corp. filed Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the District of New Jersey to implement a restructuring support agreement, according to a press release.

Before making the filing, the company and some of its subsidiaries inked a restructuring term sheet with some holders of its 7˝% senior secured notes due 2025 and 8% senior secured notes due 2026 to be implemented through the Chapter 11 cases.

The restructuring contemplates a debt-for-equity transaction to be implemented through the plan, through which holders of the senior secured notes will receive common equity of the company or an entity formed to indirectly acquire substantially all the assets or stock of the company.

In the event the restructuring is not effectuated, the term sheet contemplates that the consenting noteholders will agree to purchase all or most of the company’s assets through a credit bid.

The restructuring or credit bid will be subject to the company’s potential receipt of otherwise higher or better offers.

It is possible that holders of secured notes claims receive all or a portion of their recovery in the form of cash proceeds of one or more asset sales or a combination of cash proceeds and equity in New Rite Aid.

Plan terms

The plan, which remains subject to ongoing negotiations, calls for the following:

• Each holder of a claim on account of a debtor-in-possession-based lending facility will receive, in the event of a restructuring, its allocated share of an exit ABL facility, or, in the event of a credit bid transaction or an alternative sale transaction, either payment in full in cash or its allocated share of the exit ABL facility;

• Each holder of a claim on account of the DIP first-in, last-out facility will receive, in the event of a restructuring, its allocated share of an exit FILO term loan facility, or, in the event of a credit bid transaction or an alternative sale transaction, either payment in full in cash or its allocated share of the exit FILO term loan facility;

• Each holder of a DIP term loan claim will receive payment in full in cash;

• To the extent any allowed ABL facility claim remains outstanding on the effective date, each holder of an ABL facility claim will receive either payment in full in cash or reinstatement of the allowed ABL facility claim under the exit ABL facility;

• To the extent any allowed FILO term loan facility claim remains outstanding on the effective date, each holder of a FILO term loan facility claim will receive either payment in full in cash of all ABL facility claims, or reinstatement of the allowed FILO term loan facility claims under the FILO term loan facility;

• Each holder of an allowed senior secured notes claim will receive, in the event of a restructuring, 100% of the common equity of New Rite Aid (subject to dilution by the management incentive plan and any equity-linked securities issued to the holders of allowed general unsecured claims), plus its pro rata share of a takeback facility, if applicable, or, in the event the restructuring transaction is not a plan restructuring, its pro rata share of the distributable proceeds, if any, in line with a waterfall recovery;

• Each holder of an allowed general unsecured claim will receive, subject to the DIP term loan claims, the ABL facility claims and the FILO term loan facility claims being satisfied in full in cash and the satisfaction of any allowed adequate protection claims, a percentage of an equity-linked instrument in New Rite Aid (the form and terms are to be determined);

• Each intercompany claim and intercompany interest will be reinstated, set off, settled, distributed, contributed, canceled or released without any distribution on account of such intercompany claim;

• All existing equity interests in Rite Aid will be canceled and extinguished, and holders of existing equity interests in Rite Aid will receive no recovery; and

• Section 510(b) claims will be discharged, canceled, released and extinguished without any distribution.

DIP financing

The company has lined up a $3.25 billion super-priority senior secured DIP ABL facility with Bank of America, NA as administrative agent and collateral agent.

The financing will consist of a $2.85 billion revolver and a $400 million FILO term loan.

Proceeds will be used to repay all debt under the company’s existing credit facilities, to fund the Chapter 11 cases, to provide working capital and to make other payments during the proceedings.

The facility is set to mature in one year.

The revolver will bear interest at SOFR plus 325 basis points, and the term loan will bear interest at SOFR plus 525 bps (subject to downward adjustment to 475 bps following certain paydown events).

There is a 1% upfront fee payable at closing.

The company has also lined up a separate $200 million DIP term loan with Bank of America as administrative agent and collateral agent.

Proceeds will be used to fund the cases, make certain other payments and provide working capital.

The facility is set to mature in one year and bear interest at SOFR plus 750 bps.

Stalking horse deal

On Sunday, Hunter Lane, LLC, a subsidiary of Rite Aid, entered into a stalking horse asset purchase agreement with MedImpact Healthcare Systems, Inc., through which MedImpact has agreed to purchase substantially all of the assets of Hunter Lane, known as the Elixir assets, for $575 million and assumed liabilities.

The acquisition is subject to approval of the bankruptcy court and one or more auctions to solicit higher or otherwise better bids.

Rite Aid hopes to conduct an auction by Nov. 20.

The agreement would provide for a breakup fee and expense reimbursement equal to up to 3.5% of the purchase price.

Other details

In its petition, the company listed more than 100,000 creditors, $7.65 billion in assets and $8.6 billion in liabilities.

Its largest unsecured creditors are McKesson Corp., based in Irving, Tex., with a $667.57 million trade payables claim, U.S. Bank NA, based in Wilmington, Del., with a $199.69 million 7.7% notes due 2027 claim, Humana Health Plan, Inc., based in Washington, D.C., with a $136.83 million litigation claim, Loyd F. Schmuckley Jr., based in Sacramento, with a $58 million litigation claim, and Seqirus USA Inc., based in Summit, N.J., with a $35.41 million trade payables claim.

Kirkland & Ellis LLP is serving as legal adviser, Guggenheim Securities is serving as investment banker and Alvarez & Marsal is serving as transformation officer and financial adviser to the company.

Rite Aid is a full-service pharmacy with headquarters in Philadelphia. The Chapter 11 case number is 23-18993.

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