Rite Aid, the pharmacy chain that emerged from its first bankruptcy less than two years ago, is seeking court approval for a liquidation plan that would effectively end the company's 63-year run as a retail pharmacy operator. The plan, detailed in a 176-page disclosure statement filed September 3, 2025, in the U.S. Bankruptcy Court for the District of New Jersey, outlines how the company will distribute proceeds from extensive asset sales to creditors and transfer its remaining operations to supplier McKesson Corporation.
The Chapter 11 case, filed under case number 25-14861 (MBK), represents a dramatic reversal of fortune for the Scranton, Pennsylvania-founded company that once operated more than 2,100 stores nationwide. New Rite Aid, LLC and its debtor affiliates filed for bankruptcy protection on May 5, 2025, citing continued operational challenges and liquidity constraints that persisted despite the company's previous restructuring.
Swift Asset Sales Generate Substantial Recovery
Since filing for bankruptcy, Rite Aid has moved aggressively to monetize its assets, generating significant proceeds for creditors. The company sold pharmacy assets from over 800 locations to major competitors including CVS Pharmacy, Inc., which acquired prescription files from 625 pharmacies, and Walgreen Co. Store closing sales have generated $96 million in cash proceeds, while real property sales have produced an additional $70 million.
"The Debtors have worked tirelessly to identify a value-maximizing path to wind-down the Company's operations," the disclosure statement notes, emphasizing the comprehensive nature of the asset disposition strategy.
The proposed plan centers on a settlement with McKesson Corporation, Rite Aid's primary pharmaceutical supplier, which accounts for approximately 99% of the company's prescription drug inventory. Under the restructuring support agreement executed August 31, 2025, McKesson will receive equity interests in certain reorganized entities and purchase remaining pharmaceutical inventory, while also contributing $15 million in cash to the restructuring.
Creditor Recovery and Voting Process
The plan provides limited recovery for most creditors, with holders of Prepetition FILO Claims—the only class entitled to vote—receiving their pro rata share of a $60 million cash distribution. General unsecured creditors would receive no recovery, while certain administrative claimants may receive distributions from a $5 million pool established through negotiations with secured lenders.
Voting on the plan is scheduled to conclude October 7, 2025, with a confirmation hearing set for October 17, 2025. However, the company has built in flexibility through a "toggle" mechanism that would allow it to pursue a structured dismissal instead of plan confirmation if circumstances warrant.
Second Bankruptcy Reflects Ongoing Industry Challenges
Rite Aid's return to bankruptcy court underscores the persistent challenges facing traditional pharmacy retailers. The company emerged from its previous Chapter 11 case on August 30, 2024, with a rationalized store footprint of approximately 1,277 locations and a significantly deleveraged balance sheet. However, the disclosure statement reveals that anticipated improvements in vendor relationships and access to replacement financing failed to materialize as expected.
"Many front-end vendors were unwilling to return to normalized trade terms following emergence, despite assurances that they would do so," the company stated in explaining its renewed financial difficulties. The resulting inventory shortages created a "vicious tailspin" where declining sales led to further constrained liquidity and even more restrictive vendor terms.
The company's employee base has been reduced from approximately 24,500 at the petition date to about 6,000 as of August 2025, primarily focused on asset sales and wind-down activities. Most unionized employees are expected to be terminated by September 27, 2025.
Legal Proceedings and Settlements
The bankruptcy case has been marked by significant litigation, including disputes with CVS over asset purchase agreement terms and ongoing controversy with McKesson over payment obligations and rebate withholdings. The proposed plan includes comprehensive releases designed to resolve these disputes, though parties retain the right to opt out of certain third-party releases.
The Pension Benefit Guaranty Corporation terminated Rite Aid's pension plan effective July 31, 2025, assuming responsibility for benefit payments to plan participants. The company also faces potential WARN Act liability related to employee terminations.
Paul, Weiss, Rifkind, Wharton & Garrison LLP and Cole Schotz P.C. serve as co-counsel to the debtors in the proceedings. The case is being jointly administered with 117 affiliated debtor entities under the lead case number.
The proposed plan represents what company management believes is the best available outcome for stakeholders given the company's operational challenges and competitive pressures in the retail pharmacy sector. If approved, it would mark the end of an era for a company that once ranked as the third-largest retail drug chain in the United States.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 176 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.