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.