Oct 16, 2023
Rite Aid Will File For Chapter 11. Are Opioid Lawsuits To Blame?
Rite Aid has sustained $2.9 billion in losses over the last 6 years, and opioid-related lawsuits will certainly not be helping.
- 10 minutes
Pharmacy chain Rite AID filing for
bankruptcy once the largest drugstore
chain in the country, it's failed to keep
up with rivals including CVS and Amazon.
>> Speaker 2: That's right, RITE AID
is officially waving the white flag.
But it's kind of unclear whether
they're doing this in good faith or
[00:00:18]
if this is just a sneaky maneuver
to escape more than 1000 federal,
state, and local lawsuits for
its role in the opioid epidemic.
So we have talked about companies,
especially when it comes to the opioid
epidemic, filing for bankruptcy as a way
[00:00:35]
of skirting their financial responsibility
to the victims of the opioid epidemic.
But let's get into the details here and
we can decide whether that might
be the case here with Rite Aid.
So let's talk strictly about
Rite Aid's financials.
Okay, so Rite Aid currently has about
$3.3 billion in long term debt.
[00:00:56]
Now, the way businesses
work in this country,
apparently having a lot
of debt is a good thing.
Cenk, you're a businessman.
Tell me about that.
>> Speaker 3: Yeah, look, guys,
a lot of companies these days do a lot of
financial shenanigans as they merge and
merge more, and
[00:01:14]
they're bought up by sometimes
private equity companies, et cetera.
Or they're like Discovery
who wanted to buy CNN and
the other properties of Warner Brothers.
And so in order to execute that,
they load themselves up with debt.
[00:01:30]
And sometimes in the case of private
equity, if it's not a public company,
they will then take a lot of that debt and
literally put it in their pockets.
And that has driven many
companies into bankruptcy.
So there's already issues with companies
that are taking on way too much debt.
[00:01:48]
It is not core to their business.
It's done for financial reasons,
not for substantive reasons.
Then there's the actual
issues that Rite Aid has, and
then there's the lawsuits and
trying to evade responsibility.
Now, this is the latest trick
we've told you about it before,
[00:02:03]
where they go, golly gee,
do I have to pay for all my wrongdoings?
I guess I'm bankrupt.
By the way, I'll see you guys tomorrow
once I get out of bankruptcy.
>> Speaker 2: Now, in the case of
Rite Aid, I actually do think it's
unclear because they have been losing
a lot of money for many years now.
[00:02:19]
So, for instance, the company has
sustained losses of roughly $2.9
billion over the last six years,
which is not sustainable,
especially when you consider the $3.3
billion they have in long term debt.
Now, during the last two years,
Rite Aid closed more than 200 stores and
[00:02:38]
also rejected 168 new leases.
Now it operates around
2000 stores nationwide.
So here's where that leaves the company,
financially speaking.
So according to their bankruptcy filing,
as of October 15 of 2023,
[00:02:56]
the company has $524,000,000 of
liquidity consisting of revolver
borrowing capacity of $390million and
$134 million in cash.
So I can't really wrap my
head around those numbers.
[00:03:12]
That seems like a lot of money.
But when you compare that to the debt
they have, when you compare that to their
losing streak, six years of losing
billions and billions of dollars,
I can understand why they would feel
compelled to file for bankruptcy.
>> Speaker 3: So there's two things here.
[00:03:27]
One is that's why we tell you to
take every situation case by case.
So whether it's a strike against the
company or it's a bankruptcy or many other
situations, is it a big company,
a small company, is it very profitable?
Is it not profitable?
These things matter, right?
[00:03:43]
So when the giant companies with GM and
Ford and the Big Three put away about
a quarter of a trillion dollars in
profits over the last decade and
they say they don't have money for their
workers, well, that's super relevant.
They're gigantic, and
they have all the profit in the world.
[00:03:59]
So that's obviously not true.
In the case of Rite Aid,
it's not as clear because they are
actually having financial troubles right?
Now having said that,
when you see these giant amounts of debt,
going back to the first question,
sometimes it's totally fine.
[00:04:16]
Like, Amazon had an unbelievable
amount of debt forever, right?
And the market would just give
them more money and more money and
more money as they lost and lost and lost.
But the expectation was that
they would corner the market and
then make tremendous profit.
[00:04:33]
And it turned out,
in that case, it was true.
They did corner the market,
which is actually problematic
on monopoly grounds, right?
And then they did wind up charging more,
and
they did wind up making record profits.
So sometimes debt doesn't mean anything.
Sometimes debt is somewhere in the middle,
like Discovery and Warner,
[00:04:52]
where you're like,
I think they got too much debt.
But just because you see debt, that
doesn't mean the company's in trouble.
But in the third category, sometimes
debt means you're Donald Trump and
don't know how to run a business and
you're about to go broke, okay?
So this one is closer to
having real troubles.
[00:05:07]
But now, by the way,
that's the problem when you play games.
We've shown you now a number
of companies going, well,
I don't wanna pay for the OxyContin
that I pumped into the market.
I profited off of, and
I did these settlements, but now I want
to squelch on the settlements because my
investors are saying they don't wanna pay.
[00:05:24]
They just want all profit and
no cost, right?
So, okay, well,
you cried wolf so many times.
Now with Rite Aid, we can't tell if
it's a wolf or if you're just a scammer,
just like the other pharmacies and
the other companies trying to get out
of paying what they owe
to the American people.
[00:05:40]
>> Speaker 2: Now,
Rite Aid has switched CEOs.
They have a new CEO in place, and
they also secured $3.45 billion
in new financing to support it
through this restructuring effort.
But we haven't even gotten to
the details of these lawsuits yet and
[00:05:58]
Rite Aid's alleged role
in the opioid epidemic.
Now, let's get into those details.
So, according to the Justice Department's
civil lawsuit against the company,
Rite Aid was aware of the damage
that opioids were causing, yet
[00:06:13]
they over dispensed the opioids anyway,
even when some of the pharmacy
workers saw these prescriptions as
questionable and potentially illegal.
Federal officials said in a statement
that the drugstore chain filled at least
[00:06:29]
hundreds of thousands of
illegal prescriptions for
drugs, including opioids.
Now, when Rite Aid employees
flagged concerns internally,
these were often dismissed.
In 2015, an analyst in Rite Aid's
government affairs department
[00:06:44]
reprimanded a pharmacist after
the pharmacist left a note on a prescriber
profile that read, this may be a cash
only pill mill verify and notate.
The analyst said the note would be removed
and advised the pharmacist to remember
[00:07:00]
to always be very cautious of what you
put in writing or what is put in writing.
Basically, don't put it in writing.
We don't want anyone to catch us
dispensing drugs that we should not be
dispensing.
Now, Rite Aid isn't the first
pharmaceutical company to get hit
[00:07:16]
with such lawsuits, nor the first to file
for bankruptcy potentially in response.
Now, again, we don't know for
sure with Rite Aid,
it seems like they were
struggling financially.
But I do want to give you some examples
of other companies tied to the opioid
epidemic that filed for bankruptcy
in order to skirt responsibility,
[00:07:32]
including Purdue Pharma.
So there's Purdue Pharma,
Mallinckrodt, and Endo International.
They each reach settlements of
their opioid claims in bankruptcy,
worth an aggregate total
of more than $8 billion.
That allocated more to opioid plaintiffs
than to other unsecured creditors.
[00:07:51]
Much of that money, however, hasn't been
paid as the companies work through legal
and financial challenges using Chapter 11.
Now, last week, a bankruptcy court
approved a restructuring plan for
drug maker Mallinckrodt, a deal that
cut $1 billion that it owed as part
[00:08:08]
of an earlier opioid settlement
agreement with states.
The Ireland based company, entering its
second bankruptcy in less than two years,
had originally agreed to pay $1.7 billion.
So, in other words, these bankruptcy
filings oftentimes are like the investors,
[00:08:25]
like the shareholders will compel
the bankruptcy filing because through
bankruptcy, they'll ensure that they get
their piece of the pie before the actual
individuals who won these settlements
get paid the settlements they're owed.
[00:08:42]
>> Speaker 3: Yeah, so
creditors get priority in a bankruptcy.
So if you gave money to Rite Aid,
you want, in a sense, look,
bankruptcy is never ideal,
but in a situation like this,
you almost want them
to declare bankruptcy.
So they wipe away what they owe
everyone else, including the citizens.
[00:09:01]
Right, but they gotta pay you
first because you're the creditor.
Now, one thing that definitely should
not be allowed is investors switching
over to creditors right
before a bankruptcy.
So investors give money to a company,
and they own equity.
A certain percentage of the company,
right.
[00:09:18]
Whereas creditors give a loan and
they get money back on their loan.
It's very different, if investors who
already own a big chunk of the money and
would make way more money if the company
is successful, then go, just kidding.
We're switching over to creditors
right before the bankruptcy.
[00:09:34]
That's obviously to protect their
money and is totally unacceptable.
Now, is the government gonna
do anything about that?
I think government is very slow to catch
on and correct financial misdeeds,
and they also happen to give
a ton of money to politicians,
[00:09:52]
so we'll see if they ever catch that one.
But this whole concept, to me, the bigger
problem is not Rite Aid, it's this idea
of, yeah, we'll agree to settlements,
but because we're lying, we're never
gonna pay you, we're just gonna do
financial tricks until you don't get paid.
[00:10:11]
But the richest people in the country do.
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