RITE AID is under fire after paying its CEO over $20 million in combined fees and bonuses.
The pharmacy chain, which filed for bankruptcy on October 15, 2023, hired CEO Jeff Stein to help with the restructuring of the company.
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At the time of filing, Rite Aid had $4 billion of long-term debt obligations and paid nearly $200 million in annual debt interest, The Street reported.
The company planned on hiring a new CEO to reorganize its debts then hand over control to bondholders.
In exchange for restructuring the company’s debt, Stein gets paid $300,000 in monthly consulting fees and a one-time $20 million success fee for successfully helping the company emerge from Chapter 11 bankruptcy.
In total, Stein’s salary equates to $22 million.
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Stein’s multi-million dollar salary led to objections from its creditors.
The Tort Claimants objection states that the $20 million success fee equals the amount that all unsecured creditors would receive in total from their combined claims.
The claimants state that $20 million is four times greater than fees paid to other CEOs in Chapter 11 cases.
Lenders are also allegedly upset with Stein’s salary and demand it gets reduced.
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Rite Aid’s reorganization hearing will take place on June 27-28.
When Stein first got on the team, he quickly started closing locations across the country.
Originally, the store planned on closing 154 underperforming locations, Syracuse.com reported.
Since the end of last year, Rite Aid has closed an additional 77 stores this year totalling around 400 stores nationwide.
There are currently 1700 locations still operating in the United States.
How does bankruptcy work?
Bankruptcy is a specific legal process that helps companies eliminate debt they can’t repay.
The process allows businesses to start fresh and gain access to new credit.
Supervised by federal courts, bankruptcies allow a company to sell off its assets more easily to pay off creditors, according to Investopedia.
Chapter 11, a common process for companies, is used to restructure a business with the goal of remaining open – even if it means selling off most of the company’s properties.
Chapter 7, on the other hand, sells all of a company’s assets, putting it out of business.
Chapter 15, alternatively, allows for collaboration between American and foreign courts to conduct bankruptcy proceedings with “parties of interest involving more than one country,” per the United States Courts.
The mass closures and bankruptcy of Rite Aid shows the greater issues of retail stores across the country.
The retail apocalypse, which refers to the mass closure of brick-and-mortar stores, has affected mega-chains like JCPenny and Dollar Tree.
Following the COVID-19 pandemic in the fall of 2020, JCPenney filed for bankruptcy after being nearly $2 billion in debt, CNN reported.
The retail chain shut down around 154 stores, leaving the company with 660 operating locations to date.
Despite having recently closed a Pennsylvania location, Marc Rosen, CEO of JCPenny, said in 2023 the company remains hopeful.
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“One of our critical success factors is that we’re all aligned; we all want to grow our businesses,” he said.
“It takes a great store and online experience to do that.”
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