Rite Aid’s Chapter 11 Bankruptcy: Overview and Path to Emergence

Rite Aid Corporation, one of the largest pharmacy chains in the United States, filed for Chapter 11 bankruptcy protection on October 15, 2023, citing a burdensome debt load, persistent operational headwinds, and extensive opioid litigation liabilities. The company, which operated more than 2,100 stores in 17 states, assured customers that stores would remain open throughout the restructuring. According to Pharmacy Times, Rite Aid took this step to manage nearly $4 billion in funded debt and resolve legal uncertainties that had weighed on its performance.

Background

Founded by entrepreneur Alex Grass in 1962, Rite Aid started as Thrift D Discount Center in Scranton, Pennsylvania. It quickly expanded throughout the 1960s and 1970s, eventually rebranding as Rite Aid Corporation. By the early 1990s, it had grown into one of the nation’s leading drugstore chains. Notable acquisitions—such as Thrifty PayLess in 1996 and Brooks and Eckerd in 2007—helped Rite Aid surpass 5,000 stores at its peak. However, unsuccessful merger attempts (including a protracted effort to be acquired by Walgreens) and ongoing competition from CVS, Walgreens, and big-box retailers such as Walmart and Target slowed its momentum.

Prior to its bankruptcy, Rite Aid explored multiple cost-saving measures, store closures, and asset sales. In 2018, the company sold nearly 2,000 stores to Walgreens, raising $4.38 billion but leaving the remainder of the business struggling with debt. A potential merger with Albertsons collapsed that same year. Despite these challenges, Rite Aid persisted as a crucial community pharmacy resource, with thousands of pharmacists handling over 200 million prescriptions annually.

History & Growth

Over six decades, Rite Aid established itself as a fixture in U.S. neighborhoods. In addition to selling healthcare and consumer goods, the company expanded services to include immunizations, disease management, and basic clinical support. Rite Aid’s heritage of providing accessible health services in underserved regions helped solidify its position as the third-largest pharmacy chain in America.

Rite Aid’s store count reached an all-time high in the early 2000s, but market shifts and debt service obligations forced management to re-evaluate its footprint. The company launched RxEvolution in 2020—a strategic overhaul that refocused its pharmacists as healthcare providers, offering clinical services like point-of-care testing and expanded immunizations. Nonetheless, persistent financial and regulatory pressures complicated growth.

Business Segments

Rite Aid operates two core segments: Retail Pharmacy, comprising its brick-and-mortar stores, and Pharmacy Services, primarily organized under the “Elixir” brand. The retail segment accounts for the lion’s share of the company’s roughly $24 billion in annual revenue, while the Elixir PBM processes prescriptions, negotiates rebates with manufacturers, and administers Medicare Part D plans for over 1.5 million members. The Retail Pharmacy business encompasses front-end merchandise (cosmetics, household essentials, over-the-counter medications) plus prescription drug services. In many areas, Rite Aid was the only pharmacy offering an accessible walk-in clinic model, providing immunizations and basic healthcare education. Meanwhile, the Elixir segment includes mail-order and specialty pharmacy services, helping insurers and employers manage drug costs.

Capital Structure

As of its bankruptcy filing, Rite Aid reported $3.999 billion in funded debt obligations, along with significant operating lease liabilities. The company’s liquidity was limited to roughly $524 million—$134 million in cash and $390 million in available borrowing capacity. Major secured instruments included a senior asset-based revolving credit facility, a FILO (first-in, last-out) term loan, and multiple tranches of secured notes, some maturing as early as July 2025.

Prepetition Challenges

Aside from debt, Rite Aid grappled with persistent underperformance in certain regions, declining front-end sales, and a shifting reimbursement climate. The company also faced roughly 1,600 lawsuits tied to the U.S. opioid epidemic. In March 2023, the U.S. Department of Justice filed a civil complaint accusing Rite Aid of ignoring red flags and inappropriately dispensing opioids in violation of the False Claims Act.

Despite aggressive cost-cutting measures, Rite Aid faced mounting financial pressures leading up to its Chapter 11 filing. CFO Dive reported that these efforts were ultimately insufficient to offset the company’s debt load, legal liabilities, and underperforming stores. In an effort to mitigate losses, Rite Aid closed over 200 underperforming stores between 2021 and 2023, saving an estimated $60 million in annual expenses. Nevertheless, costly rent obligations on vacated leases continued to pressure cash flow. Inflationary pressures and labor shortages also complicated efforts to maintain profitability, prompting an eventual move to seek Chapter 11 protection.

Strategic Initiatives

Leading up to its bankruptcy, Rite Aid undertook several strategic moves. It engaged financial advisors and counsel to evaluate restructuring options, while launching a targeted store portfolio review under the “Rite Aid 2.0” plan. The company also marketed its Elixir PBM to potential bidders, hoping to generate funds to reduce debt. Meanwhile, Rite Aid worked on operational efficiencies—rationalizing front-end product lines, centralizing procurement, and refreshing store layouts to enhance the customer experience.

By August 2023, an ad hoc group of secured noteholders proposed a term sheet for a comprehensive reorganization, offering debtor-in-possession (DIP) financing to sustain operations. Rite Aid ultimately secured $3.45 billion in DIP financing to reassure suppliers, pay employees, and fund day-to-day expenses while negotiating a formal plan of reorganization.

First Day Motions and Court Filings

Shortly after filing, Rite Aid obtained court approval to continue using its prepetition cash management system and honor employee wages. The court also authorized DIP financing on an interim basis, allowing the company to access needed liquidity. Rite Aid filed motions requesting approval of store closure procedures, permission to continue customer loyalty programs, and retention of relevant advisory firms. All these steps aimed to stabilize day-to-day operations and minimize disruptions for employees, vendors, and customers. The company also signaled its intention to finalize any sale of Elixir PBM through a fair, court-supervised auction if higher offers emerged.

Emergence

By mid-2024, Rite Aid’s plan of reorganization was confirmed, slashing over $2 billion of debt and enabling the company to settle the majority of opioid-related claims. The reorganization plan also authorized the sale of certain assets, including possibly divesting the Elixir PBM if the offers aligned with creditor expectations. According to a Business Wire press release, Rite Aid emerged from Chapter 11 with a smaller store base—having closed around 500 locations—and a stronger liquidity position to invest in its remaining markets. Likewise, Fierce Healthcare noted the chain’s debt reduction and new leadership, while Healthcare Finance News reported Rite Aid’s renewed focus on a more sustainable business model.

In a public statement, Rite Aid emphasized its post-bankruptcy focus on delivering pharmacy services, streamlining front-end product lines, and further elevating its pharmacists as frontline health providers. With legacy debts significantly reduced and legal challenges largely resolved, the “new” Rite Aid is positioned to compete more effectively against major chains, digital pharmacies, and grocery-based pharmacies. Executives noted that the restructured organization’s success will hinge on leveraging the Elixir PBM’s capabilities and solidifying retail store offerings in its core regions.