Rite Aid Creditors Blast Bankruptcy Plan’s $20 Million for CEO

Rite Aid Corp. is facing pushback from junior creditors to its proposal to pay its new CEO $20 million under its bankruptcy exit plan.

The bankrupt pharmacy chain’s CEO employment agreement is part of its strategy to reorganize in bankruptcy, which it filed in October amid widespread litigation alleging its opioid sales helped fuel a national epidemic. Rite Aid has proposed a restructuring plan that would reduce its $8 billion in debt and allow bondholders to take over the company.

Rite Aid has struck deals with the Justice Department, pharmaceutical distributor McKesson Corp, some states, and committees representing unsecured creditors, opioid victims, and other tort claimants. However, one of the groups representing tort claimants on Monday opposed the company’s inclusion of an employment guarantee for CEO Jeffrey Stein, who was brought on around the time of the bankruptcy filing.

If a bankruptcy judge approves the plan, Stein will receive a $20 million “success fee” when Rite Aid emerges from bankruptcy, the tort claimants’ committee said. Stein would also collect a $300,000 monthly salary, the objection said. The tens of thousands of individuals, communities, and businesses “that were harmed by the debtors’ misconduct in fueling the opioid crisis” would collectively receive less than Stein, the committee said.

“The only issue nearly all of the constituencies have agreed upon from the outset of these cases is their mutual disgust at Stein’s attempt to walk away with an obscene jackpot,” according to the filing in the US Bankruptcy Court for the District of New Jersey.

The committee noted that the proposed success fee is the same amount—$20 million—that all of Rite Aid’s unsecured creditors are set to receive when the company exits bankruptcy. The settlement also includes for those creditors another $27.5 million over time, rights to some stock in the reorganized company and rights to potential future litigation.

Stein’s pay would be “at least four times” the amount chief executives of other bankrupt companies have been paid, the court filing said. A separate committee of unsecured creditors and a group of 14 states, represented by the Commonwealth of Pennsylvania, joined in the tort claimants’ objection.

Rite Aid didn’t immediately respond to a request for comment.

The company filed for Chapter 11 last year aiming to rework its debt, close unprofitable stores, and resolve opioid-related lawsuits. Rite Aid has been shuttering unprofitable stores and sold its pharmacy benefits manager unit, Elixir, to MedImpact Healthcare Systems for $575 million in December.

A hearing on the plan is scheduled for April 22.

Government objections

The DOJ’s bankruptcy watchdog, known as the US Trustee, on Monday challenged the plan as well, taking issue with what it said are overly broad releases and improper injunction provisions. The state of Maryland also objected, saying that the bankruptcy proceedings have provided inadequate notice to creditors, depriving those who don’t have resources of the ability to “protect themselves.”

The state, which says thousands of customers in Maryland have died from overdoses “after receiving controlled substance prescriptions from Rite Aid,” also opposed a provision of the plan that the state says would improperly eliminate government claims.

Kirkland & Ellis LLP and Cole Schotz PC represent Rite Aid. Sherman, Silverstein, Kohl, Rose & Podolsky PA and Akin Gump Strauss Hauer & Feld LLP represent the tort claimants’ committee. Maryland’s Office of the Attorney General represented the state. Kelley Drye & Warren LLP and Kramer Levin Naftalis & Frankel LLP represent the unsecured creditors’ committee.

The case is In re: Rite Aid Corp., Bankr. D.N.J., No. 23-bk-18993, objection 4/15/24.