US-based drugstore chain Rite Aid has been granted approval by a US judge to commence the voting process on a bankruptcy restructuring plan, Reuters reported.
This plan would transfer most of the company’s equity to its bondholders while keeping the option of a sale on the table.
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US Bankruptcy Judge Michael Kaplan approved the voting proposal during a hearing in Trenton, New Jersey, emphasising the urgency of the bankruptcy case to mitigate additional costs and the risk of liquidation.
The media outlet quoted the judge as saying: “Every day engenders additional cost and risk. We just don’t have the luxury of kicking this can down the road anymore.”
Rite Aid filed for Chapter 11 bankruptcy proceedings in October last year with the aim to reduce its debt, close underperforming stores, and divest non-essential business segments.
The retailer revised its bankruptcy plan, which would cut $2bn in debt and allocate $47.5m to junior creditors, including those who have filed lawsuits against Rite Aid for allegedly illegally filling opioids prescriptions.
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By GlobalDataWhile Rite Aid has refuted these allegations, it is in the process of finalising settlements, which is crucial to the restructuring.
The retailer is prepared to gather votes from bondholders, who are the key voting group in the bankruptcy, Reuters reported citing legal representatives of the Rite Aid.
No other parties will be entitled to vote, with bondholder votes due by 15 April.
Judge Kaplan described Rite Aid’s voting proposal as “unusual” due to the exclusion of last-in-line creditors from voting.
Meanwhile, the judge concurred with the retailer’s assessment that there would be insufficient funds to repay these creditors after settling higher-priority debts.
According to court documents, junior creditors are set to receive $47.5m as a “gift” that would not have been possible without settlements with creditors of key priority.
The allocation of how $47m to junior creditors will be split between opioid victims and other creditors is yet to be determined.
In addition, junior creditors will receive a 10% equity stake in the restructured Rite Aid, and retain the opportunity to seek further recoveries through litigation or insurance claims.
Bondholders, represented by attorney Andrew Rosenberg, remain open to a potential sale of the company, with active bidders involved in ongoing negotiations.
The revised bankruptcy plan allows these sale discussions to proceed alongside the restructuring.
Rite Aid is set to request final court approval for its restructuring on 22 April.
In January this year, Rite Aid received bankruptcy court approval to divest its Elixir pharmacy benefit manager business for $575m.
