September 27, 2023
RITE AID is negotiating with creditors over the terms of a bankruptcy plan that would include closing a substantial portion of its more than 2,200 drugstores, according to sources. The Company and bondholders are in discussions over the number of stores to be closed. Rite Aid has reportedly proposed to close 400 to 500 stores in bankruptcy, and either sell or let creditors take over its remaining operations. A group of bondholders would prefer to close a larger number of stores. A number of Rite Aid's stores are under long-term leases that it cannot easily extricate itself from; consequently, the ability to reject leases makes bankruptcy a desirable option for such companies.
The Company has over $3.30 billion in debt and faces over a thousand federal lawsuits alleging it oversupplied opioids. Most of the federal opioid lawsuits have been consolidated into a multidistrict litigation in Ohio. The Company also faces similar cases pending in state courts that allege it contributed to the opioid epidemic, as well as a civil lawsuit by the Justice Department that alleges it dispensed controlled substances in violation of the False Claims Act and Controlled Substances Act. Rite Aid has sought to dismiss the Justice Department's lawsuit, and it has denied the allegations that it filled unlawful opioid prescriptions. The opioid litigation claims are expected to be treated as unsecured claims in a potential bankruptcy, meaning the Company could potentially pay only pennies on the dollar to plaintiffs for their claims.
If it elects the bankruptcy alternative, Rite Aid reportedly plans to conduct an auction to sell its Elixir pharmacy unit and other valuable parts of the business.
Three pharmaceutical manufacturers - Purdue Pharma, Endo International and Mallinckrodt - have filed for bankruptcy in recent years to resolve opioid litigation they faced. Rite Aid would be the first pharmacy chain to seek Chapter 11 while facing opioid-related lawsuits.
We are monitoring developments closely, and we will provide updates as appropriate.
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The UFCW expressed concerns about the proposed acquisition of KROGER and ALBERTSONS stores by C&S WHOLESALE GROCERS. Published reports indicate that Kim Cordova, president of UFCW Local 7 in Colorado and Wyoming, referred to Haggen's failures in 2015 after acquiring 146 Safeway and Albertsons stores to satisfy antitrust issues from the Safeway-Albertsons merger. Cordova expressed doubt that C&S would be able to compete effectively in markets where Kroger is much stronger, leading C&S-owned stores to eventually close. Furthermore, the real estate value of the acquisition is estimated to exceed the purchase price of $1.90 billion, with the stores alone estimated to be worth $2 billion to $3 billion. Reports have noted that C&S has a history of acquiring stores and then selling them off after establishing long-term supply agreements with the new owners.
Meanwhile, Kroger is opening a new 57,000 square-foot spoke facility in Johnstown, CO which will work in conjunction with Kroger's existing CFC in Aurora, CO. Kroger currently operates CFCs in Monroe, OH; Groveland, FL; Forest Park, GA; Pleasant Prairie, WI; Dallas, TX; Romulus, MI; Aurora, CO; and Frederick, MD.
On September 19, INSTACART completed its IPO with the sale of 22 million common shares at $30 a share. The IPO valued the Company at about $10 billion, nearly 75% below the $39 billion valuation it received in 2021. In addition, the Company's shares which opened on Nasdaq at $42, quickly retreated and are currently trading near the original $30 offering price.
WALMART plans to open a pet services center in Dallas, GA, adjacent to one of its stores, offering veterinary care and grooming services. The pet center will also provide an automated subscription-based service, streamlining orders of pet food and supplies, in addition to offering perks through Walmart+.
H-E-B plans to open a 117,000 square-foot store in Allen, TX on October 4. Another three sites are planned for North Texas in Melissa, Prosper, and Rockwall, with all three anticipated to open in 2025. In the last couple of years, H-E-B opened North Texas stores in Frisco, Plano, and McKinney. There are also plans to open new stores in Mansfield and North Fort Worth.
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PUBLIX is spending $50 million to convert a 140,000 square-foot former FedEx building in Lakeland, FL the Company recently purchased into a hub intended to house hundreds of IT workers. The Company acquired the structure in January 2023 for $8.6 million. After renovating that site, it plans to renovate a nearby 120,000 square-foot facility formerly occupied by J.C. Penney where Publix already houses technology teams. The combined structures will be called the Publix technology campus.
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Arch Insurance, VARSITY BRANDS' insurance company, filed a "reformation action" in U.S. District Court, seeking a judgment that would modify Varsity's 2018-2019 commercial general liability coverage to include the same "abuse & molestation" limitations that were part of its previous and subsequent coverage. Arch, according to its lawsuit, has provided general liability insurance to Varsity since 2017, with a per-occurrence limit of $1 million and a general limit of $5 million. Varsity's 2017-2018 policy included a three-page endorsement for instances of abuse and molestation, with limits of $1 million for each "sexual abuse occurrence" and $2 million for sexual abuse aggregate. Arch said in recent court filings that similar language was intended to be included in Varsity's 2018-2019 policy but that it recently discovered only the first page of the abuse and molestation endorsement had been attached, leaving off the language describing who is an insured person. Arch describes it as a "good-faith, mutual mistake," but claims that Varsity is now refusing to remedy the matter by retroactively accepting a "corrected" version of the policy.
BASS PRO SHOPS plans to build a 100,000 square-foot store in Tucson, AZ, its first in the area and third in the state. The Company plans to spend $35.8 million to build the new store on roughly 13 acres at The Bridges, and employ about 128 workers. The opening date remains to be determined. The Company operates 171 stores under the Bass Pro and Cabela's brands across the U.S. and Canada.
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In the PARTY CITY, DIP case, Anagram Holdings, LLC and Anagram International, Inc. elected to not pay the August 2023 interest payment on their 15% PIK/Cash Senior Secured First Lien Notes due 2025. They also entered into a forbearance agreement with a majority of the holders of the First Lien Notes, and a majority of the holders of their 10% PIK/Cash Senior Secured Second Lien Notes, due 2026.
On August 22, the Debtors reported that the forbearance agreement terminated and the 30-day grace period under the First Lien Notes regarding the missed interest payment expired on September 15. This caused an event of default under the First Lien Notes and cross-defaults under the Second Lien Notes and the Anagram Credit Agreement provided by Wells Fargo, N.A. The Anagram issuers are currently in active dialogue with holders of the First and Second Lien Notes and the ABL Facility lenders to address the defaults, and they are currently in discussions with holders of a majority of the First and Second Lien Notes regarding deleveraging and financing transactions. The Debtors noted that they are not a party to, or liable under, the Anagram Issuers' debt agreements, and the defaults do not impact PCHI's debt agreements or access to liquidity.
We previously noted that Anagram Holdings, LLC and Anagram International, Inc. are not part of the Party City Chapter 11 proceedings. Party City buys almost all of its balloons from Anagram, but it has threatened to reject the contract during bankruptcy. Anagram receives approximately 40% of its sales through Party City. There had been previous speculation that the Debtors might spin-off Anagram as part of the planned exit from Chapter 11.
WALGREENS has been served with a proposed class action lawsuit in Florida over claims it "mislabeled eyedrops for treating pink eye and misled consumers into believing the product was safe and effective." The lawsuit comes after the FDA sent a warning letter to eight companies last week, pointing to eye products that were being illegally marketed to treat conditions like conjunctivitis, cataracts, and glaucoma. The FDA, which had not approved the products at issue, said the products could be harmful to consumers because they can bypass some of the body's natural defenses.
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