I'll give everybody an opportunity to adjust
their videos as well as I'll take the opportunity
to adjust my video. All right, obviously we have
close to 200, we're having some feedback. Let
me... Let me just... Wait, wait, wait. We're
gonna be okay. Can you all hear me? Somebody
give me a thumbs up. And all right, let's continue.
Actually, bear with. All right. Let's continue.
Best laid plans never seem to work. So we're
going to conduct Today's hearing remotely, apparently,
clearly. We have over 200 participants. I will
then, so I will ask all of you who wish to be
heard to make use of the raise hand function,
and we will do our best to identify you and ensure
that you can be heard. We have several matters
on, obviously. agenda has been filed in lieu
of having everyone still playing unfortunately
for camera here My apologies, folks. We're coming
from the laptop camera, not that camera. So,
what we will, still having staff give me a hand
here. There we go. Oh, I feel so much better.
Little things in life. All right. In lieu of
having everyone enter appearances that could
take up to an hour, I will ask for appearances
when you are called upon. And that way we can
move more efficiently and effectively. I know
there's quite a few who wish to be heard. It's
a complicated case. Obviously it's a case that
the court is familiar with. But let me start
and ask for appearances on behalf of the debtor.
Good afternoon, Your Honor. Felice Yudgen, Kohlschacht
PC, proposed co -counsel to the debtors. I am
on the line with a bunch of other people from
my firm who will present and I will have them
make their appearances as they present later
on, Your Honor. And I'd like to introduce to
the court our co -counsel, Alice Eaton from the
Paul Weiss firm, Your Honor. With respect to
those parties, from on behalf of the debtors
that are not admitted to practice before this
court. We have submitted ProHoc Niche applications
and I would request that they be heard this afternoon,
Your Honor. That's not a problem. I know our
clerk's office has received and reviewed numerous
ProHoc applications. Many of them unfortunately
are making use of or not making use of the local
form order. We'll take the steps necessary to
make sure that when they get entered, there'll
be a local form order approving them. But for
purposes of today, welcome to New Jersey, at
least virtually. Thank you, Your Honor. I'm gonna
turn the podium over to Ms. Eaton. But just really
one quick housekeeping matter, Your Honor. Just
to address the first two items that were on the
agenda, which are the complex case designation
and joint administration, which are two customary
non -controversial applications to the court,
and I would request that Your Honor enter those.
I think they're pretty self -explanatory in terms
of the relief that we are seeking. All right,
thank you. As I will do, I'm sure repeatedly
today, are there any objections? This is Jeff
Sponder of the United States Trustee's Office,
Your Honor. No objection. Thank you. So we'll
mark both of those granted. Thank you. Thank
you, Your Honor. And with that, I'll turn the
podium over to our co -counsel. Ms. Eaton, good
afternoon. Good afternoon, Your Honor. My name
is Alice Eaton with Paul Weiss, and we're proposed
Council, co -counsel to the debtors. And we're
here on behalf of New Rite Aid LLC, and it's
the affiliated debtors. We have a short presentation
for Your Honor, but before I get to that, I just
want to note for everyone on the Zoom, we all
know that Rite Aid plays a critical role in providing
essential medication and healthcare services.
And at the company, we are committed to maintaining
continuity of care throughout this process. Rite
Aid's pharmacies are stocked and we are filling
customer prescriptions without interruption.
There have been some rumors about stores closing
immediately and going dark, especially in New
York. These rumors are not true. Later in the
presentation, we'll talk about five stores, only
five stores, that will be transferring prescriptions
to other pharmacies in the ordinary course. Those
prescriptions will continue to be available at
the new pharmacy, and we have a chart that will
identify those five stores. So we just wanted
to clear up some of that, some of the press for
everybody's benefit. Second, we want to let everybody
know that our lenders support us and are funding
this process, and we have sufficient liquidity
for this process. We therefore will continue
to have medications available. And we are paying
our associates to show up to work, to dispense
medications, and provide patient counseling.
And our overarching goal through this process
is to protect our customers, our employees, and
our other stakeholders. We're doing that by providing
structure. certainty and transparency through
an orderly transfer of our prescription files
to other pharmacies that will continue to fill
those prescriptions and can offer opportunities
for our pharmacists. And we'll also be selling
our non -pharmacy assets at the same time. And
the relief we're seeking here today is to allow
us to begin all of this process. Prior to the
hearing, Your Honor, we engaged in discussions
with our key stakeholders, including our lenders
who are represented by Chote, with McKesson,
who is represented by Sidley, certain of our
landlords, and I won't name all of their counsel.
And nobody has reached out to us with an objection
to the relief and the timeline of what we're
seeking today. So before I go on to the presentation,
I also want to introduce some of my other members
of the Paul Weiss team. I'm here today with my
colleagues, many of whom you may know, including
Andy Rosenberg, Billy Claireman, Greg Laufer,
Chris Hopkins, Sean Mitchell, Allison Benedon,
Claudia Tobler, and Nick Krishbaud. This is among
the team that you will hear from today. So why
don't we get into, unless Your Honor has questions,
we can go to our presentation. No, I appreciate
it. I appreciate your opening comments. I always
said, at least one of the benefits of having
the remote hearings is the transparency, is the
ability to get information out accurately among
media outlets, social media, and I think it's
important, especially for a case such as this.
Thank you. But you can continue. Thank you, Your
Honor. So why don't we go to page four of our
presentation? And I'll give you a situation overview
of sorts, Your Honor. Let's see. There we go.
There we are. OK, terrific. So since emerging
from Chapter 11 in August of 2024, Rite Aid's
businesses have continued to experience a number
of challenges. Unfortunately, these challenges
have only intensified as a result of the rapidly
evolving healthcare retail landscapes in which
we operate and several of the business challenges
that the company faced, we really didn't anticipate
at the time it emerged from Chapter 11. So to
address these various issues, over the past few
months, we've been evaluating in coordination
with our lenders several options to identify
the best path forward. And after considering
all of our alternatives, we determined that the
only viable path forward for our customers, employees,
creditors, and all of our stakeholders is to
once again commence Chapter 11 proceedings and
transition our pharmacy assets to our competitors.
So we will use this case to pursue a value maximizing
sale process for our assets while ensuring our
customers continue to receive the medications
and care they need. speak to later in this presentation,
Your Honor. We're in active discussions with
multiple potential purchasers of our assets,
and we intend to use these cases to conclude
those discussions and consummate the sales of
our assets. So turn the page. Your Honor, our
pharmacy business has remained strong and delivered
exceptional care prior to, during, and after
emerging from the prior bankruptcy case. Our
pharmacists at Rite Aid are the heart of our
business. Our pharmacists have gone above and
beyond to provide care to customers for over
60 years and continue to show up every day with
the same dedication throughout and after the
company's prior cases. They consistently delivered
high standards of personalized care, trusted
expertise, and essential services to support
the everyday health and wellness needs of our
communities. As a result, Rite Aid pharmacists
are deeply rooted in their communities and have
developed close personal relationships with many
of the customers. Customers see our pharmacies
as a key component of their healthcare journey,
not just a place to pick up medications. Unfortunately,
our non -pharmacy business or otherwise known
as our front -end retail business, the high margin
part of any retail business, significantly underperformed
due to a variety of adverse circumstances. And
it couldn't be turned around following our emergence
from bankruptcy. Let's turn the page. Now, from
the last case, Your Honor, you might recall our
elixir business, our pharmacy benefits manager
business. And following We have sold this business.
We sold this business in the last case. And following
that sale transaction, there's only one elixir
entity remaining in the debtor's corporate structure.
It's an entity called Elixir Insurance Company,
or EIC. And that's the entity which historically
offered drug benefits to eligible beneficiaries
under Medicare Part D. As was the case in our
prior chapter 11, EIC is not a debtor in these
cases. And to provide you with an update, because
you may hear about Elixir and EIC from other
parties, EIC is currently undergoing a wind down
under Ohio state law, and the debtors have been
in contact with the applicable regulatory authorities,
including the Ohio Department of Insurance. We've
also been in contact with the Department of Justice
regarding Elixir's wind down. Your Honor, may
recall from the earlier case from our 2023 bankruptcy,
EIC and Rite Aid entered into a settlement agreement
with the Department of Justice and the Department
of Health and Human Services with respect to
claims asserted against EIC and other Rite Aid
subsidiaries under the False Claims Act. And
under that settlement, the parties, Rite Aid
and EIC, agreed jointly to pay the United States
$101 million in settlement of those claims. To
date, we've made $56 million of these payments,
and we are in contact with the Department of
Justice regarding the outstanding $45 million
amount. Let's go to the next page. Your Honor,
some of these parties will be familiar to you.
On behalf of the debtors, we have advising Paul
Weiss as counsel and Cole Schatz, Alvarez and
Marsal as financial advisor, Guggenheim Securities
as investment banker, A &G as our Realty Advisor,
and Kroll as our Claims and Noticing Agent. And
we also note that the DIP Agents, Bank of America,
Wells Fargo, and Capital One are advised by Choate,
BRG, and Greenberg Trowrig. Your Honor, you've
seen this slide before. This is a history of
our company from its founding in 1962, our many
acquisitions, our first chapter 11 case in 2023
and our emergence in 2024. Let's go to the next
page. Your honor, following the 2023 bankruptcy,
this is now our footprint. You'll recall that
we divested our Midwest business. And so we have
our Northeast, our Mid -Atlantic business, our
Pacific Northwest and California businesses.
We have 1 ,277 retail stores across these 15
states, and we have three distribution centers.
And currently, we serve 8 million customers across
these 15 states, and we dispense 2 million prescriptions
every week. Let's go to the next page. So, Your
Honor, this is a description of the two components
of our business, the retail pharmacy and what
we call the front -end business. They're symbiotic
because our dedicated pharmacists deliver essential
medications and care to our pharmacy customers,
and that includes, as many of you know, immunizations
and general health consultations. And our front
-end retail business offers a variety of non
-prescription products, including health and
beauty aids, personal care items, convenience
products. Now, historically, the prescription
drug business drives a large volume of foot traffic
to our stores, which drives revenue from these
higher margin fund and sales if there is adequate
inventory in stock for those products. This is
our post -August 2024 capital structure, which
will also be familiar to many involved. And we
have approximately outstanding under an ABL facility,
a filo liquidity facility, one and a half lien
notes and three L notes. So, going back to why
we're here today and what happened, Your Honor,
when the company emerged from bankruptcy in August
2024, we all made very rational and justifiable
business assumptions that included expecting
vendors to return to pre -filing trade terms
and releasing deposits, which would have generated
sufficient liquidity to be invested in the front
-end business. We also expected to quickly secure
incremental liquidity facilities at the time
of emergence, which would further provide necessary
liquidity for purchasing inventory and improving
in stock rates. However, these assumptions did
not materialize And Rite Aid's reality quickly
became very different than what we all expected
at emergence. It was the combination of adverse
macroeconomic factors, including lower consuming
spending resulting from inflation and higher
interest rates, changing customer preferences,
market uncertainty, and all of that significantly
reduced revenue compared to projections. Many
vendors maintained restricted payment terms and
refused to return deposits. and we were unable
to secure incremental liquidity facilities on
the anticipated timeline. So as a result of these
factors, the company did not have adequate cash
to execute on a business model, which required
a well -stocked front -end shelf. Now, this all
happened, unfortunately, at the worst possible
time, immediately ahead of the critical seasonal
fourth quarter period when pharmacies typically
have their highest sales volume. And as a result,
the impact of these negative factors on our revenue
is exacerbated. Let's go to the next. Your Honor,
this just graphically shows the liquidity challenges
that the company faced during 2024 and early
2025 with these ongoing competitive and in a
very competitive landscape in the retail pharmacy
space. We simply had declining levels because
we weren't able to restock our shelves and that
problem persisted. We had declining inventory
levels, which then led to a reduced borrowing
base under our ABL facility. As a result of that,
we had reduced liquidity because we had less
borrowing base to borrow against and could not
purchase additional inventory. So all of these
effects compounded in real time, causing the
company to fall further behind. on its goal of
replenishing inventory to the level required
to achieve revenue and cash flow projections.
Let's go to the next page. So the company did
not sit on its hands and sought to address all
of these challenges through a variety of strategic
initiatives. We implemented operational cost
saving measures, including reductions in force
among discretionary departments, managing labor
hours, cost saving policies, consolidating distribution
centers, managing supply chain, closely managing
working capital and labor hours, and implementing
lease modifications. We also engaged in footprint
rationalization efforts, and those efforts that
started during the bankruptcy of 2023 continued.
and continue to this day. And it results in the
ordinary course closure of 29 retail locations
and definitive purchase agreements for the prescription
files of another 63 stores. Now, Your Honor,
we listed the five stores I raised at the top
of our hearing. Certain of these stores are scheduled
to close this week. And we'll be seeking relief
in our store closing motion with respect to these
stores. These are ordinary course transactions,
but out of an abundance of caution, our store
closing motion includes a notation in the order
that any of the closings that occur before you
enter that store closing order will be covered
by that order. And again, these stores, as you
can see, are in Peterborough, New Hampshire,
Portland, Oregon. One store in Brooklyn. one
in Vernon, Pennsylvania, and another in Cheshire,
Connecticut. And the last of our initiatives,
we amended our pre -petition ABL credit agreement
in mid -January in an effort to unlock additional
liquidity. And this liquidity was provided in
the form of these certain escrow funds that were,
it's called the CMSR. escrow that was created
in the last bankruptcy case and also provided
for a down of reductions in the minimum ABL availability
covenant. So, as I've said before, our primary
goal here in this Chapter 11 is to achieve value
maximizing sales of our stores and our prescription
to other pharmacy companies. And we're here today
because a court -supervised Chapter 11 process
is essential to do several very important things.
First and foremost, continue to fill our prescriptions
and eventually transfer those prescriptions in
an orderly manner. Second is to preserve jobs
for our employees and to preserve as many as
possible through the opportunity for those employees
to be interviewed and employed by the purchasers
of our assets. And lastly, maximizing value.
by moving forward with an organized, structured
business sale on an expedited basis, first focusing
on the sale of our pharmacy assets, whether that
includes the scripts themselves, leases, or any
of other assets that those purchasers seek to
purchase, and then a second process for the remaining
assets that will begin at the end of May and
run into June. Let's go to the next slide. Just
to give you some sense of our strategic sales
process, which is being run by Guggenheim. We
call it the strategic sales process. We call
it the Guggenheim process. But basically, this
is a process that began back in March. And there's
been ongoing, the company has done ongoing evaluation
of the sales process over time, but the Guggenheim
was engaged in March. And through this process,
the company sought to divest or monetize any
of its assets. The mandate was quite broad. And
the sale process that we're looking for you to
approve today is really the conclusion of this
robust month -long process that occurred, a marketing
process that occurred pre -petition that was
carried out by the debtors with the assistance
of their banker Guggenheim. So to be clear, beginning
in early March, Guggenheim contacted 38 parties,
signed 21 NDAs, gave data room or VDR access
to 20 parties, and there are 10 parties. As of
the petition date, 10 parties still working.
Since the petition date, we've received outreach
from additional parties who have signed NDAs,
were granted access, and now we believe we have
15 -plus parties still working and working towards...
the sale and the bid deadlines. So here are our
milestones. This is just with respect to the
sale process. There are separate milestones for
the dip that key off of these dates. And as you
can see, Your Honor, we have our pharmacy asset
sale process, which as I said, can include leases,
it can include other assets, but primarily it
is focused. Anyone who wants to buy these pharmacy
assets, they have to bid in connection with the
pharmacy deadline. And then you have the remaining
assets that are left over after we get through
our prescription sales. The bid deadline is early
in the morning on May 13th. The auction, if we
need one, will begin on Wednesday, May 14th.
Objections? I'm sorry, we'll file, apologies.
We will file our proposed sale order on May 16th.
The objection deadline will be the 19th and the
sale hearing on May 21st. And as you can see
from the right -hand column, the remaining asset
sale process, indications of interest will be
required by May 30th and that sale process goes
through June with the sale hearing on June 25th.
So, Your Honor, even though we've been moving
quickly, we took the time, pre -petition, to
make sure that we could coordinate with all of
our various regulators. And as you can see from
this list, there are many, to alert them to our
Chapter 11 filing and our expectation that we
would be selling our assets, selling the prescriptions,
and transferring them to purchasers on a relatively
expedited timeline. And as you can see here,
most important at the bottom, in addition to
the Department of Justice, it's the state attorney
generals, the Drug Enforcement Administration,
the Pennsylvania Governor's Office, the FTC,
and the state boards of pharmacy in the 15 states
in which we operate. So there are a few slides
here about our proposed dip financing, and Mr.
Hopkins will cover the dip motion. But just so
you see it, we're asking the court's authority
to enter into a dip facility that will give us
$240 million of incremental liquidity on top
of the existing $1 .7 billion that will convert
from pre -petition loans to post -petition loans
as we... as cash is swept down and we pay down
the lenders under their existing loans. The pricing
is here. Mr. Hopkins will go through it. It's
a 12 -month loan. Let's go to the next page.
Fees are paid in kind and the security is, and
priority is, you know, it's a self -priming dip
and it primes all of the existing ABL and will
be senior. Let's go to the next page. The DIP,
as Mr. Hopkins will walk through, has milestones
that are keyed off of our sale process timeline.
And Your Honor, as you can see, if you go back,
we have a milestone of June 9th for entry of
a final order. And so we will be asking for a
final hearing on the approval of the DIP on a
final basis in early June. We've included the
budget and this is a slide we might refer to
later as questions arise. This was filed on the
docket and is available to all the parties. So,
Your Honor, since we filed the cases, we've received
a lot of questions from landlords and you know,
parties that want to simply understand how the
sale process affects their rights. Because we're
proposing to sell all of our assets, that includes
leases, and there are several different processes
pursuant to which leases can be sold. And so
here we have our global process. We're calling
it the Guggenheim M &A process that is governed
by the bidding procedures. Then we have sale
of closing locations or alternatively our store
closing motion, which is nearly identical to
what was entered in the last case. And this really
covers the ordinary course closures that arise.
The one, two, three, six, it can be larger in
number, but basically the very ordinary course
prescription sale and store. uh, store sales
that, uh, the company has engaged in, uh, you
know, since its last bankruptcy. Then we have,
um, a lease and fee -owned property sale procedure.
And then we also have, um, a motion rejecting
Cisnunk Pro Tunk, um, as well as an unexpired
executive contract and non -residential lease
rejection procedures motion. Let's turn to the
next page because this will then make a lot more
sense. It's like a spillover effect, Your Honor.
We have all these processes and ultimately, at
the end of the day, it all funnels over to the
lease and executory contract rejection procedures.
If your lease isn't assumed or rejected pursuant
to our strategic Guggenheim process, if it's
not rejected pursuant to our closing location
sale, or our lease and auction procedures, we
think that will cover 99 .9 % of all of our lease
matters. If there's anything left after that,
we will then file or rely on the first day pleading
the lease and executory contract reduction procedures.
So first you focus on the Guggenheim process,
then the closing and location process. Then we
go to the lease and fee property auction procedures,
and then you go to really what would be one -off
assumption or rejection if they weren't covered
by all three sale processes before. So our first
day agenda, just to put this up for your honor,
for ease of reference, we're going to kick off
with our bidding procedures motion. and then
go to our dip financing motion and our store
closing procedures and real property sale procedures
motion. Those motions will be covered by Paul
Weiss. Then we will hand over the podium to Cole
Schatz, and they will cover the remaining motions,
cash management, wages, et cetera. Your Honor,
if we don't finish today, we will be asking for
bridge orders, but my hope is that we will be
able to finish the hearing. the hearing this
afternoon, so orders can be entered today. So
that is our presentation, Your Honor, and we
believe, as I said earlier, that this is a necessary
step to protect the interests of all of our stakeholders,
and we at Rite Aid are committed to conducting
an efficient and value -maximizing sale process.
So, Your Honor, unless you have any questions,
we can go into the first motion on the agenda,
the motion for entry of an order approving our
bid procedures. All right. I think it makes sense
to take these matters consistent with the agenda.
I will hear from parties who have concerns or
who wish to take issue or object. Can we take
down the slides? There we go. All right. So we
have number three on the agenda, number 18 on
the court's calendar, the motion for approving
the auction and the bidding procedures. I have
read through the declaration of Mr. Rifkin and
the overall declaration of the Chief Transformation
Officer. Excuse me? Thank you. Regarding overall,
all of the first day matters as they pertain
to this motion. Let me hear the motion, then
I'll address, I see one hand raised already.
Two hands. Your Honor, before we do that, I forgot.
I apologize. Before we get to the motions, we'd
like to move the declarations of Mr. Liebman,
our Chief Transformation Officer, into evidence,
as well as the declaration of Adam Rifkin of
Guggenheim Partners and Elise Freya, our expert
on consumer privacy issues. All right. Let me
hear if there are any objections or any parties
through counsel wish to... take the opportunity
to cross -examine any of the witnesses with respect
to their declarations, understanding that obviously
everything's been filed on shortened time and
on, for the most part, interim basis. Ms. Nelson,
I see your hand raised. I don't know. Yes, Your
Honor. I wanted to address the revised CPO declaration.
We believe there are some significant gaps in
that declaration that I can address in my argument
again Related to the bid procedures order, but
just wanted to lodge an objection noting that
there are significant omissions And it is by
no means a complete CPO Report under the bankruptcy
code All right. I'll certainly hear from you
further on it With respect to the declarations
of through any council wish the opportunity to
cross -examine. I have any of the declarants
that have been identified? All right. The court
will accept the declarations in lieu of direct
testimony into evidence. We'll mark the declaration
of Mark Liebman as D1. The declaration of Mr.
Rifkin as D2, and the declaration of Elise Fresca,
if I'm pronouncing it somewhat correctly, which
certainly appeared in front of me before, as
D3. And then I'll hear concerns again and objections
in the course of the presentations. All right.
Council want to continue with the bidding procedures
motion? Yes, Your Honor. Your Honor, we have
already spent some time outlining our sale milestones
and our process. But just to be clear, we have
our pharmacy asset process for May and our remaining
asset sale process that will begin with indications
of interest at the beginning of May and running
through June. Parties who are party to NDA as
of the petition date, they are, if they want
to purchase pharmacy assets, which can also include,
if they want, they can purchase leases as well,
but if they want to purchase pharmacy assets,
they are required to submit an indication of
interest, pardon me, they're required to submit
a bid and an APA by the bid deadline on May 13th.
When we get to the conclusion, of our auction
process, we will post a notice of what is remaining
to be sold. And the remaining assets will go
into the remaining asset sale process, which
will continue forward with the indication of
interest in May with the sale hearing at the
end of June. There are, because of the sensitivity
of our pharmacy assets, that's obviously where
we want to seek expedited relief under Rule 6003
for our remaining assets, which can include IP,
our ice cream business, and other assets that
we hold. They are not nearly as exigent in terms
of a speedy transition. And so those can occur
on a more ordinary timeline. However, I'll note
that the Guggenheim mandate allowed, included
the sale of all of these assets. And so the marketing
process for assets has been ongoing for some
time. And so what I'd like to do is I'd like
to hand over the podium to my partner, Sean Mitchell,
who will cover the remainder of the motion. And
so I'll just quickly move my materials and allow
Sean to take my seat. All right, thank you. Good
afternoon. Good afternoon. John Mitchell from
Paul Weiss proposed council for the debtors.
All right, let me please proceed. Thank you,
your honor. So, your honor, I believe we sent
a revised form of order to your honor. We've
been we've been hard at work for with with the
number of parties who've reached out and given
given feedback, given feedback on the form of
order. I would like to describe a few of the
most salient changes for Your Honor, and then
I will propose to hear from those parties, and
then we can hear from parties that have any further
opposition to the order where I propose. Go.
Proceed. So Your Honor, first, we connected with
Mr. Sponder and Ms. Spinski from the Office of
the United States Trustee, and there we made
two We made two salient changes, the first of
which is we adopted a final and interim dichotomy.
So what we're asking your honor today is we're
asking your honor today for a final order in
respect of the pharmacy assets. And we're asking
your honor for an interim order in respect of
the remaining assets with a final hearing on
May 21st. All right. That's the first piece.
OK. Second piece is on the consumer privacy ombudsman.
Your Honor, where we landed is that the debtors
are seeking an order that they will relieve their
privacy policies allow for the transfer of the
other protected data. Therefore, the appointment
of a consumer privacy ombudsman is not necessary.
that party's rights to raise the issue in the
future are reserved. All right, thank you. So
that's the first batch changes. All right, continue.
The second change stems from a meeting with Mr.
Eman O 'Hagan from the United States Attorney's
Office for the District of New Jersey. And there
what the debtors have proposed to do, and this
is in the revised form of order, is in connection
with the sale process, the debtors propose to
file the form APA that will be posted to the
debtor's dating room this Friday. And then in
connection with the winning bid, when it's filed,
they will file a red line through that order
to assist parties review of any changes. Continue,
please. And then finally, we have a few clarifications
stemming from discussions with parties representing
landlords. So the clarification for the record
is in respect of the assumption and assignment
provisions for unexpired leases and executory
contracts to be assumed and assigned to a bidder.
And the clarification for the record, which which
is also in the revised form of order, is that
counterparties to an executory contract or uninspired
leases to be assumed and assigned to a buyer
will have 14 days. To clear up any confusion
about that, vis -a -vis the objection deadlines
for the seal itself. All right. Are those incorporated
in the separate motion dealing with assumptions
and rejection of the of the leases and executive
agreements, or is that part, is that only limited
as part of the sale motion? I believe it's part
of the sale motion. Just part of the sale motion?
The sale, the bidding procedures order that we're
asking Your Honor to enter today. All right.
And then finally, we were in contact with the
FTC today. And the FTC asked us to confirm something
on the record, which I shall do right now. So
for the record, any sale under these procedures
will comply with the debtor's privacy policies
and state law, including with respect to the
opt -out feature. And no customer data will be
sold who has opted out. All right, we have that
on the record. And is that your initial presentation?
That's initial presentation, Your Honor. I would
propose to hear from parties who have feedback,
and then we'll take it from there. Thank you.
I see a variety of hands. So let me first turn
to the Office of the U .S. Trustee, Mr. Sponger.
Thank you, Your Honor. Jeff Sponda from the Office
of the United States Trustee. Your Honor, we
have no objection to the entry of the order that
incorporates the United States Trustee's proposed
revisions and, as has been stated, will be final
as to the pharmacy assets but interim as their
remaining assets. Although the issue as to the
consumer privacy ombudsman is reserved, Your
Honor, even if the sales transactions are consistent
with the privacy policies, we think a consumer
privacy ombudsman should be appointed in these
cases. Your honor, these cases are much different
than the first cases where the goal of those
cases was mainly to reorganize. These cases appear
to be liquidation cases, and the debtors with
their 8 million customers, as we were just advised,
contain immense amounts of individuals, PII and
PHI. The US trustee acknowledges that the debtors
have again hired a consultant concerning the
privacy issues, just like in the prior cases.
But in these cases, being would appear to again
be liquidating cases and independent third party
should be appointed to look at these privacy
issues, not the individual selected by the debtors.
Just wanted to set that for your honor for the
record. We know it's reserved, but. we think
that this case is in a much different posture
and your honor, even though the privacy policies
may be in line with allowing the sale, still
someone independent should look at these. Thank
you, Your Honor. All right, thank you, Mr. Sponder.
Let me turn to others who wish to be heard. Let
me start. Ms. Nelson, Kimberly Nelson, let me
have your appearance. Thank you, Your Honor.
I realize I neglected to introduce myself properly
last time. That's all right. Kimberly Nelson,
Bankruptcy Council for the Federal Trade Commission.
And while I appreciate the prior statement regarding
our interest, it doesn't fully resolve everything
we're here to talk about. Your Honor might recall
that we entered into an order with the debtors
in its prior case, and one of the provisions
of the orders relates to misrepresentations.
And the debtors are... prohibited from misrepresenting
the extent to which they maintain privacy of
covered information. Covered information under
our order includes things like PII and PHI. This
is with the caveat that we've had less than 24
hours to review all of this information Regarding
these sales and to clarify the prior representation
made on the record. We were not contacted pre
-prepedition. We were contacted yesterday regarding
this filing so one of the concerns we we see
right off the bat is the the definition of pharmacy
assets and what is prescription data or PHI or
information that is allowed to be transmitted
under HIPAA, it's not clear whether that includes
PII. So you can be a pharmacy customer of Rite
Aid, but also not have a prescription with Rite
Aid, and they still have lots of PII on you because
you're a customer of the store. So what's not
clear is what exactly is being sold. what customer
data is being sold. Is it PII? Is it PHI? Is
it both? And we think that's a really important
distinction to draw in this context because pharmacy
data has a particular value, customer data has
a particular value, and we just don't know whether
it's jumbled together or separate or what is
happening here. So for that reason, we think
the finding in paragraph 25 of the order is premature.
because there's just not enough evidence to understand
what privacy policies govern the sale of certain
assets here, certain data assets, that is, and
whether or not everything is actually being confided
with. Which brings me to my second point, which
is the revised CPO report. Some of the problems
that we noticed right off the bat was There's
no analysis of whether the customer data collected
for consumers who opted out might be sold or
how it's being treated or how it's been filtered
out. And absent that clarification, again, there's
no assurance other than what was just stated
on the record today that they don't intend to
sell the opt -out customer data. Secondly, there's
no mention of our order. And under 363, B1, B2,
the ombudsman should be reviewing not only the
privacy policy, but other applicable law. Our
order is other applicable law. And I think it's
a glaring oversight for any CPO not to be looking
at our order in conjunction with this sale. And
finally, there's no analysis in the revised CPO
report that was filed about state -specific provisions
and how they affect the sale of assets. It's
mentioned in a footnote, but it's not analyzed.
So, for example, the current privacy policy,
the one that was amended less than a week before
the case was filed, says in a state -specific
provision, California's in particular, that Only
certain specific identified personal PII type
assets can be sold, and no others can be sold
of California customers. And there's just no
analysis of whether or how the sale complies
with that specific provision of the privacy policy.
And again, if... If that is sold, if that California
customer data is sold in violation of the privacy
policy, that's a misrepresentation under our
order which is then likely an order violation.
So you can see how these issues compound when
it's analyzed in conjunction with our order.
So again, these are just a few of the things
that we saw in the last 24 hours, and we'll keep
working on it and obviously keep discussing things
with the debtors. But given the extremely accelerated
timeline that we're under here, this is a lot
of really important information to be missing
from a sale involving customer data, whether
it's PII or PHI. All right. Thank you, Ms. Nelson.
I'm sure I'll turn at some point to debtors council.
to address these issues or lay out a format for
addressing these issues. Let me hear from others.
Ms. Hellman, let me have your appearance. Good
afternoon, Your Honor. Leslie Hellman for Ballard's
Bar on behalf of a number of the debtors' landlords.
Current total number right now is north of 50
locations, including Federal Realty, Fairview,
Hattenski, Crabco. sterling realty income spirit
and Weiss markets your honor. I'm also local
council to another landlord council Ivan gold
who is I see has his hand raised as well and
has and Would request permission for him to speak
at the appropriate time. That's your honor. We
did work with Mr Mitchell and mr SS on the our
comments with respect to the proposed bidding
procedures and the expedited timeline as you
can Imagine our biggest concern was having to
respond to a sale of a lease on no less than
one business day's notice. And even though, because
the bid procedures didn't provide for separate
assumption and assignment procedures for the
leases themselves to the extent that a bidder
was seeking a transfer of the lease as part of
a larger sale. And we did receive that clarification
that any transfer or sale of a lease as part
of this larger sale whether it's the pharmacy
asset sale or the remaining asset sales will
be on 14 days notice upon notice of the successful
bidder of those assets. So we will have a full
14 days prior in time to any approval of the
sale and a transfer of those assets to the buyer
if the objection can be resolved, then the transfer
can occur earlier. If the objection cannot be
resolved, I'm sure that we will then seek a hearing
before Your Honor in which to have a determination
on that objection. But with that clarification,
that there will be actually actual notice and
adequate time to review the buyer and object
if necessary, that would resolve our issues.
There were other minor changes to the order at
the request of the landlords and we do appreciate
the debtors working with us expeditiously to
resolve those issues. All right, thank you, Ms.
Holliman. I appreciate identifying those issues.
I'll turn to Mr. Gold now and hear from him as
well. Thank you and good afternoon, Your Honor.
I've been gold for a number of the debtor's landlord's
current headcount in the 20s. I join in Ms. Heilman's
comments. I'd like to thank Mr. Mitchell and
his colleagues for working with us on short notice.
To respond to one of your Honor's inquiries,
what we focused on initially was harmonizing.
As Ms. Eaton outlined, there are multiple potential
paths for leases to be assumed and assigned in
this case through the variety of the transactions
that are being pursued by these states. So one
of our first goals was to harmonize the procedures.
to make sure they lined up. And that's where
you see this 14 -day procedure now is, to a certain
degree, uniform among the procedures. So the
landlords will have that 14 -day period, notwithstanding
the short fuse on the sale transaction, which
is necessary in some cases. That 14 -day period
will still exist. Hopefully many of these buyers
we will recognize. We have a safety valve procedure
if we do have to come back to Your Honor. Obviously,
as is common in every lease -centric Chapter
11, if the dispute simply relates to cure, we
have mechanisms for that so the transaction can
go forward. So again, shout out, thank you to
the debtor team for that. I just wanted to add
one more clarification, Your Honor. This motion
sought in the motion... what appeared to be a
blanket advance 6004 -6006 waiver with respect
to the transactions going forward. The order
itself, however, and that can be found in the
proposed order that accompanied the motion at
paragraph 36, made it clear that or at least
provides that 6004 -6006 waiver applies to the
procedures itself. And we have no objection to
it applying to the procedures itself because
The second we conclude today, the data is going
to be off and running to the extent they're not
already moving. But each of the various transactions
that are contemplated by the bidding procedures
order will themselves present different circumstances.
And we are not here today to argue whether a
6004, 6006 waiver or a shortening of time would
be appropriate for one of the multitude of potential
transactions. I just want to clarify on the record
that We're talking about 6004, 6006 as to the
bidding procedures order. The debtor is free,
you know, clear. We're not hampering the debtor.
The debtor is absolutely free to request that
in connection with subsequent transaction. And
as we say, we'll cross those bridges when we
come to them. But just wanted to get that clarification
on the record, Your Honor. And again, thank the
debtor team for helping us narrow and resolve
so many issues. Great. Thank you. And yes, so
just for clarification and debtors council can
confirm at a later point. The waivers with respect
to rule 6004 and 6006 relate to this pending
motion and the bidding procedure is not to the
substantive approval of the sale or any specific
sale or assumption or assignments. Thank you.
Mr. Fleischer. Good afternoon, your honor. Thank
you. Scott Fleischer, Parkland -Aidman, counsel
to a number of the debtors landlords as well.
We had the Same concern about the potential lack
of notice for leases there, so glad to get that
14 -day period confirmed. And like other council,
we're also trying to harmonize the other proposed
orders here. So just for your honor's clarification,
in the lease assumption assignment rejection
procedures motion, that's now just turning into
a lease rejection procedures motion to eliminate
one of the avenues that could cause this confusion.
about where these lie. So again, the 14 days
notice will be here. And then there were some
emails going on when we get to it, the lease
sale and field property procedures motion about
making sure landlords have appropriate notice
there as well. So just highlighting that issue
for when we get there. All right. Thank you.
So for the most part, you just want to lay the
groundwork for concerns on the notice as you're
going forward with respect to the individual
assumption assignment. transactions that are
contemplated. Thank you. Yes, Your Honor. Thank
you. Thank you, Mr. Fleischer. All right. I'm
looking. I don't see other hands. As soon as
I say that, you know what happens. Ms. VanEck?
Good afternoon, Your Honor. Sorry for the late
hint. Melissa VanEck on behalf of the Commonwealth
of Pennsylvania. I'm here, Your Honor, to just
highlight we did not have an opportunity to reach
out to debtors council. But we would like the
cell motion to include reference to our injunctive
terms that were negotiated as part of the settlement
in the first case. And as part of that agreement,
the injunctive terms were to be complied with
by any purchaser of Rite Aid. And we just want
to make sure that that is included or at least
referenced in the proposed order. so that third
parties know that they do have to comply with
those terms. And again, my apologies. We did
not have the opportunity to reach out to debtors
council prior to the hearing. Understood. Not
an issue. Thank you. Thank you, Ms. Vennick.
All right. I still see a hand, Mr. Fleischer.
I assume that was just residual. All right. Mr.
Mitchell, do you want to address any of the concerns
that have been raised? I do. Thank you, Your
Honor. So starting with, I believe, Ms. Nelson.
Yes. Ms. Nelson's concerns. So the first point
I make is this is not a consumer privacy ombudsman
report. This is a declaration in support of bidding
procedures. And what we're asking, Your Honor,
to enter today, the relief that we're seeking,
is the relief to set up the framework to get
the best value for the assets. Your Honor. And
in this framework, we're asking for certain deadlines.
We're asking for certain hearings. And of course,
we will be back before your honor for the ultimate
authority to make us to make the sale under Section
363. And for that, we will file a proposed sale
order with your honor. But today, we are not
actually seeking authority for the sale. And
for that, this is not a consumer product. It's
too much privacy. I think kind of related point
there is that What I heard is a potential sale
issue. It's unclear whether the sale will do
this. It is unclear whether the sale will do
that. Well, the reason it is unclear whether
the sale will do X, Y, or Z is that there is
no sale before your honor yet. So I think that's
an issue better handled when there is a sale
presented to your honor. Third point I'd make
is that The finding that Ms. Nelson mentioned
in connection with our addressing the U .S. trustees'
comments, now that finding reads that the debtors
assert that the proposed sale transactions are
consistent with their privacy policies and therefore
a consumer privacy ombudsman is not required.
So there's actually not even a finding anymore
that the debtors did not make these certain disclosures
on their policies. It's just a finding as to
the debtor's assertion their policies say this
or do that. And then of course... I'm not being...
Let me just clarify. I'm not being asked to rule
today on the appointment of an appointment. Correct?
Correct. And I have not heard anyone make a motion
on short notice for an appointment of one. Okay.
Anything else? And then the last point is to
address Ms. Van Eck, I believe. I think that,
too, is an issue for the sale order. And we're
more than happy to work with the government on
this. All right. Thank you. Anyone else wish
to be heard? At some point, I do want to hear
from the lenders. Probably it's more appropriate
when we address the dip finance motion. At this
juncture, what's before the court is the approval
on a recognizably truncated schedule for bidding
procedures and the process and parameters of
the sale of both the pharmacy assets and the
non -pharmacy assets. The court... appreciates
the the need for an expedited process and recognizes
that this is not even though it's a retail case
in some respects there's more to it it's not
simply a retail case involving the sale of books
or shoes or fast food or car washes we're dealing
with we're addressing health care needs when
you hear the numbers of over eight million individuals
getting their pharmaceutical needs or medicinal
needs addressed, the millions of transactions,
and the court is going to support a process that
ensures that it's a free -flowing process that
Those who will be acquiring these assets as well
as those who are going to help facilitate the
process can do so in an efficient, orderly, and
quick process to ensure continuity for the benefit
of customers, continuity for the benefit of the
pharmacists involved, and continuity for the
benefit. of the employees. It all works together.
The stores need to continue their operations
and to work in assisting the orderly transfer,
and we'll do so in a quick process, which is
why I'm going to approve this expedited time
frame. The objection that I want to thank both
Council for those who've raised objections and
concerns, as well as debtors council for having
addressed and undertaken so much of the work
prior to this hearing, obviously. And I think
it becomes obvious that this has not been a 60
day marketing period or a 30 day marketing period.
It's really been a two year marketing period.
I think the professionals have done well in addressing
the immediate needs on an interim basis. I'm
going to approve the bidding procedures subject
obviously to a reservation of all rights to take
issue with the concerns that have been raised
and I agree seem to be more sale objections than
process objections. They can be raised at the
appropriate hearing, whether it be the May 21st
hearing or the June 25th scheduled hearing for
non -pharmacy assets. We'll address them then
if they remain unresolved. With all these orders,
I would like to take the opportunity to review
the redlined and marked up versions. You let
me know that you're from debtors council. I would
like to enter these orders in an orderly fashion,
possibly tomorrow morning by like 10 a .m. But
it'll give me the opportunity tonight to review
the changes to the orders. Does that pose a problem?
I think it does, your honor. Okay, I'm told that
especially with respect to the death. We're going
to need to seek an order today. Oh, okay. I was
talking about the sale order. Talk about the
sale order. Do you need that entered today, the
bidding procedures order? Your Honor, I do think
it's important to have the order entered today
so we can have the comfort that the parties can
move forward. Do I have a final version of what's
been marked up? Yes. Oh, don't ask me. I just
want to ensure that I have, I don't want to confuse
the dock and start entering orders when there's
been language changes. I could take the time
after the hearing, assuming we get done in time,
to have them entered, but where do we stand as
far as getting the language? Your Honor, Felice
Jodgen from Coleshoth. To the extent that revised
redline orders are not in your inbox, we will
ensure that immediately following the hearing
that you have the most updated versions of the
order. All right. Well, if that's the case, I'll
make sure they get entered then. Ms. Nelson?
Yes. Thank you, Your Honor. Kimberly Nelson.
I'd like a copy of these red lines since we have
not been given a courtesy copy. I think that's
fair. Absolutely. We'll get that to you. We will
get that to you. Make sure they get anything
sent down to the court. Make sure they get circulated
as appropriate. All right. For the record, the
court will grant the motion as requested and
we'll review the order once we finish this afternoon.
I think that takes us to the dip. Good afternoon,
Your Honor. Can you hear me okay? Yes, I can.
Good afternoon. For the record, Christopher Hopkins
of Paul Weiss, Ripken, Morton, and Garrison has
proposed co -counsel to the debtors. It's good
to be back before Your Honor and reiterate all
my colleagues' comments, thanking the Court,
the U .S. Trustee, and everybody else who's been
working with us since the petition date to try
to get these issues resolved. So the next item
on the agenda is the dip motion, which was filed
at docket number 41. We filed the first day declaration
from Mr. Liebman, which has already been entered
into evidence. That was filed at docket number
24. And then just for completeness, Your Honor,
the diff budget, which is technically exhibit
C to the motion, but was filed later in the day,
was filed at docket number 67. All right. Thank
you. So, Your Honor, we're here today seeking
approval of a $1 .94 billion DIP facility that
will be provided by Bank of America and the other
lenders under our pre -petition ABL facility,
together with related mechanics for the consensual
use of cash collateral, all on the terms set
forth in the interim order and the DIP documents.
The structure of the DIP is similar to the exit
ABL. that your honor approved in the last go
round in that it has a revolving facility that's
being sized at 1 .7 billion. And then there's
a philo facility that's at 240 million. This
is a 12 month facility. And with these arrangements,
pursuant to the terms of the, you know, dip docs
and approved budget, you know, we will the difficulty
is going to provide the essential funding necessary.
to ensure these cases are a success. It took
extensive negotiations with the DIP lenders to
reach consensus on the terms of the DIP facility.
And we really believe, for all the reasons set
forth in Mr. Lehman's declaration, that this
financing is not only the best, but it's really
the only viable financing that was available
to the debtors to fund these cases. Sorry, Your
Honor. Without the consensual use of cash collateral
and the incremental liquidity that's being made
available under the DIP facility, it's really
essential to provide confidence to our customers,
our employees, our vendors, and all of our other
stakeholders who we need to make sure that this
process is as successful as possible. So with
that context, turning to the terms of the DIP
itself. So it's a 12 -month facility. As I said,
it's a $1 .7 billion revolver and a $240 million
bilo. Under the terms of the DIP facility, the
DIP lenders have agreed to modify certain covenants
and other provisions of the existing exit ABL.
That unlocks incremental liquidity for the debtors,
in addition to the cash collateral that we're
allowed to access during the case. And that is
really essential to ensure that, as your honor
knows, things happen in Chapter 11, and that
incremental liquidity provides a cushion to ensure
that all of our operations continue uninterrupted,
all of the obligations that come up, the critical
trade of the case gets paid. It's really essential
to the overall process. Similar to the DIP in
the last case, the way the DIP works is it provides
for an interim roll up of the pre -petition ABL
on a creeping basis. So as Your Honor may remember,
we've been in cash dominion. Since the since
we emerged from bankruptcy and so every day all
of our cash is swept down to the banks So the
way that interim roll -up will function You know
every day we get operating receipts at the end
We make disbursements throughout the day pursuant
to the agreed budget at the end of the day Our
cash balance is swept by the banks and the following
day There's a new advance and so over time those
you know the the sweeps pay down the old ABL
The advances are issued under the new revolver
And that is the creeping roll -up that we're
asking for approval of today on an interim basis.
There's no other roll -up being approved today
upon entry of a final order. The DIP documents
do provide for a full roll -up of the pre -petition
ADL. And I would note, Your Honor, that in this
goes to some of the hard -fought negotiations
we had getting into the case, the interim roll
-up does actually save the estates approximately
$450 ,000 in interest expense because the rate,
the interest rates on the post -petition dip
facility are actually inside of the default rates
under the old facility. So there's less interest
expense being incurred by the estates as the
dip rolls up over the interim period. There is
a fee package for the dip lenders. They get a
upfront fee that's paid in kind equal to 1 %
of the revolver, 1 .5 % of the phyllo. There
is an exit fee that's payable at maturity, but
importantly, you know, there are crediting mechanics
where any portion of the dip that is permanently
repaid prior to six months, there's no exit fee
charged on those amounts, and any amount that's
prepaid prior to nine months, 50 % discount to
the exit fee. The aggregate exit fee is 10%.
Your honor may have read in the DIPP papers that
there was also a backstop fee of 10%, but that
has been rendered irrelevant because 100 % of
the pre -petition lenders are participating in
the facility. And that backstop fee was only
intended to cover participating DIPP lenders
who overfunded their pre -petition commitments.
Otherwise, you know, it's a pretty customary
set of covenants, including, you know, the standard
budget approval process and related variance
testing on receipts and disbursements. We are
agreeing to a milestone schedule that, you know,
effectively tracks to the dates that Your Honor
just approved in connection with the bidding
procedures. For our other... secured creditors.
As Your Honor recalls, we have two series of
secured notes and a portion of the obligations
owed to McKesson under the supply agreement are
also subject to liens. There will be replacement
liens and super priority claims to the extent
of any post -petition diminution in value. The
pre -petition ABL is getting fees and default
interest until the roll -up is completed. And
then the rights of the other pre -petition secured
parties outside of the ABL to seek additional
adequate protection are preserved. Otherwise,
just to hit some other points, there's a customary
carve out. There are no statutory waivers contemplated
for today. So 506C and 552B are up for approval
at the final hearing. And otherwise, customary
challenge period. Six we're asking for 60 days
after entry of the interim order or respect to
the committee 60 days after If the committee
is appointed which is mr. Sponger said we hope
is you know sometime next week So with that your
honor, I mean that's the high -level presentation
obviously if your honor has any questions about
the facility I'm happy to answer them Otherwise,
I know we've gotten some comments from the US
trustee and a few other parties that we've been
trying to incorporate into a revised form of
order that will submit to chambers. One change
I would highlight that was requested by the U
.S. trustee, which I think the banks are prepared
to agree to, is that the filed version of the
order contemplated liens on avoidance actions
in their proceeds upon entry of the interim order.
The banks have agreed to defer that to entry
of the file. When are you looking for the final?
Where are we fitting that final in among these
milestones? So Your Honor, I believe if we're
going to have our second day hearing on June
6th that that falls within the dip milestone
for entry of the final order. The milestone is
35 days after the petition date. Okay, so June
6th is a Friday. I would peg it at 1130 in the
morning. But let me hear from others first before
we solidify that. Before I turn to anyone else
with a raised hand, Mr. Hopkins, do you have
anything else? Unless you have questions for
me, Your Honor, I do not have anything else.
Not at this juncture. I've read through the...
the motion and the supporting documents. Mr.
Ventola, good afternoon. Good afternoon, Your
Honor. I hope you can hear me okay. I can, thank
you. It's good to see you, Your Honor. Thank
you for the opportunity to be heard today. So,
just wanted to briefly echo some of the comments
that Mr. Hopkins made. This was an extraordinarily
complex process to get where we are today. We
worked... cooperatively but at arm's length in
a fiercely negotiated DIP process with the debtor
and its advisors, and we're very pleased we got
here. I would note, again, echoing Mr. Hopkins,
that all 21 banks in the pre -petition facility
have agreed to participate in the DIP, subject
to the court's approval, of course, and that
is a really noteworthy accomplishment under these
circumstances, Your Honor. So you noted earlier
you wanted to hear from the lenders. I'm here.
I should have noted at the beginning. I'm representing
Bank of America as the pre -petition ABL agent
and proposed DIP agent. Happy to answer any questions
at all that the court may have, of course. I
did want to confirm one point that Mr. Hopkins
made with a clarification. If we are able to
reach a consensual form of interim order today
and it's entered as planned, the lenders have
agreed that the lien on avoidance actions and
the proceeds of avoidance actions would be deferred
to the final hearing. With the exception, Your
Honor, of any claims under Section 549 of the
Code, we don't expect there to be any unauthorized
post -petition transfers, but if there are, I
think it's very customary for the DIP liens to
attach to that type of avoidance action, and
I'm nearly certain we had a comparable provision
in the interim DIP order in the first case, Your
Honor. So again, here for any questions you may
have, but again, pleased to be here today. Thank
you. All right, thank you. At this point, I'd
prefer to hear from others. If I have, I'll come
back to you, Mr. Ventolo. Thank you for your
time. Thank you. Mr. Sponder? Thank you, Your
Honor. Jeff Sponder from the Office of the United
States Trustee. Your Honor, we're providing a
final request of revisions on this morning. We
realize that an interim order will be entered,
but would like to reserve our rights with respect
to the revisions that we raised. There were about
eight or nine specific revisions, one of which
has already been decided, and we appreciate that.
With respect to the avoidance actions, Your Honor,
I would note that I understand from Banks Council
the 549 issue, but I did hear that there is gonna
be a possible issue with McKesson as to whether
or not the... what however much money I think
was 400 million or something is going to be is
a pre petition payment or a post petition payment.
So it could be an unlawful post petition payment.
So I know of one right there. But that's something
that we can discuss. I wasn't sure if that was
in the the order of the first case. But your
honor, with respect to the roll ups, just so
that you're aware, paragraph 12 does include
language allowing the court to fashion an appropriate
remedy upon a successful challenge to the roll
ups. So that gives me some comfort in allowing
the interim roll up. Again, there's gonna be
another roll up at the final and hopefully we'll
have committees in to deal with that. One issue,
main issue that I had before this order can get
entered, even if we don't go through my other
issues, is there, there's reference to a paragraph
numbers, and I think the reference is, is wrong.
There are a lot of references to paragraph 11,
which should be paragraph 12, which is actually
the challenge paragraph. So those, those need
to be changed for purposes of the interim order.
we need to clean up. Yes, and my other issues,
I mean I've already sent over to council, it's
an interim order. I would hope that we can quickly
resolve those issues. I will note for your honor
that page 108 provides that the DIP lenders are
not responsible for funding in the carve out
any success. transaction or similar type of fees.
And I haven't seen that before. Just wondering
though how the debtors will be able to pay that
if those fees will exist. Again, we haven't seen
any retention applications I would suspect from
Guggenheim or the investment banker, I think
they're the investment banker. So I'm not sure
how that will work. But. I can go through those
issues briefly, Your Honor. I do know one of
which is I think that they're seeking the challenge
period, 60 days for parties of interest from
the interim order. We typically ask and get 60
days from the final order. So that was one thing
that we included in there. We also included some
other myths as well. Thank you, Your Honor. All
right. Thank you. I'll hear from Dennis Council
on... what they're prepared to address. Mr. Toomey?
Good afternoon, Judge Kaplan. Can you hear me
okay? I can. Good afternoon. Great. Just for
the record, Your Honor, Dennis Toomey with Sidley
Austin on behalf of McKesson Corporation. Your
Honor, I just wanted to make a few points and
we'll only take a couple of minutes here. Just
by way of quick background, and as I'm sure Your
Honor recalls, McKesson is the supplier. of about
90 % of the dollar volume of the debtor's prescription
drugs. And McKesson's deliveries to Rite Aid
can total anywhere from $20, $30, $40 million
or more products per day. Since we emerged or
since Rite Aid emerged from bankruptcy last year,
the relationship's been governed by a new supply
agreement that we negotiated coming out of that
case. And the new agreement contains some protections
for McKesson. that the prior agreement didn't
have, for example, caps on trade credit and an
ability for McKesson to adjust those caps. And
it also provided for McKesson to receive a second
lien, as you've heard earlier, for its outstanding
trade debt. Those were among the provisions.
Turning to where we are today, McKesson is owed
at least $130 million of trade debt as of the
petition date. That's not an agreed -upon number,
which I'll touch on again momentarily. All of
that amount, Your Honor, again, falls within
the confines of Section 503B9, since it all stems
from product that was delivered in the days leading
up to the filing. And it's also secured by that
second lien that I mentioned a minute ago. As
Ms. Eaton noted, McKesson has continued to supply
Rite Aid since Monday's filing. Your Honor, Big
picture, we do not believe McKesson is obligated
to extend post -petition credit or take on any
post -petition credit risk from the debtors.
Our understanding from our discussion with Debtors'
Council, however, over the last couple of days
is that this won't be an issue because the debtors
intend to pay McKesson effectively one day in
advance during the bankruptcy cases. And my understanding
is that the DIP budget will permit the debtors
to make such payments. Just a couple of final
notes, Your Honor. We did have a few. We had
some comments on the dip order. I think some
of them have been accepted. I think if you are
still open and if not resolved, we will seek
to resolve them between now and the final hearing
or otherwise. Obviously we will file something
in advance of the final hearing to the extent
we need to. We're just now getting in the loop
on the McKesson side on the debtors game plan
for sales and store closings. Obviously. All
of that impacts the supply relationship. So we'll
need to better understand how all of it will
work. And the debtors have committed to help
get the McKesson. Is there anything exciting
in the last? Finally, just a point I alluded
to a minute ago, we have a disagreement with
the debtors involving the characterization of
a payment that was made on Monday. If it doesn't
get resolved, we do expect to be back in front
of your honor in the relatively near term. the
debtors have agreed, as I understand it, that
if McKesson is correct in its view of this issue,
that the debtors will have the ability to pay
under the dip, and otherwise it will pay McKesson
the corresponding amount in dispute, again, if
McKesson is correct in that dispute. So I just
wanted to put that on your honors radar in case
we have to come back before you. In the meantime,
McKesson will reserve all its rights with respect
to today's motions for the final hearing. That's
all I have, Your Honor. Thank you. All right.
Thank you, counsel. And if needed, you'll all
know where to find me. So thank you. All right.
Mr. McCullough. Good afternoon, Your Honor. I'm
appearing on behalf of Green Dot Corporation
and Green Dot Bank. I was only engaged this morning,
so I have not yet submitted a pro hoc Vichay
application or associated with New Jersey Council,
but intend to do so promptly if I may be heard.
Absolutely. Go ahead. Thank you, Your Honor.
Green Dot Corporation and Green Dot Bank have
a relationship with Rite Aid whereby Rite Aid
sells prepaid debit cards and other financial
products to its customers. And then those customers
may have the opportunity to come back to Rite
Aid and to reload the cards. And what that means
is that every day, RightAid receives possession
of funds from those customers, which under the
terms of the agreement, it's then required to
hold in trust and then to disperse promptly to
Green Dot. In the meantime, Green Dot, of course,
is required to supply services and advance credit
to the customers. Those disbursements have, I
understand, been interrupted as a result of the
bankruptcy filing. We've received indications
that they will be resumed, but I want to make
two points in connection with this motion and
in connection with the cash management motion.
First, my understanding is the dip notion would
not cause liens to attach to any property that
doesn't actually belong to the debtor, as we
believe these funds would not. If, of course,
the dip lenders or the debtor in possession have
a different view, we'd want to get that out on
the table. And then second, with respect to the
disbursements, it's important that those disbursements
do resume promptly so that we can continue to
provide the service supply product to Rite Aid
and avoid any suspension in services and perhaps
a fight in front of the court. So I wanted to
make those two points. I don't think it prevents
the entry of the interim orders that have been
proposed today, but I wanted to alert you to
this issue, let you know that we'll be working
with the debtors and other council in an effort
to make sure that they're appropriately addressed
in the final hearing and of course to come to
you earlier than that if for some reason disbursements
don't promptly resume or there is some question
about the safety and sanctity of the funds that
debtors are holding. All right, so we're carving
out noting that for the Inclusion in the final
order when we get there so when we get there
Thank you. Thank you. Mr. Gold see your hand
Thank you again your honor just very briefly
First another thank you to the debtor and lender
teams as interim debt orders go. This one was
pretty good in terms of anticipating landlord
issues and incorporated the experience of the
first case, and we only have minor comments.
Just in terms of a preview of coming attractions,
however, as has been noted, the budget was just
was separately filed. And we do anticipate stuff
around will be an issue in this case that will
have to be addressed. Obviously, tying that with
other comments throughout the hearing that will
await the appointment of a committee and the
retention of committee counsel. But that's just
an issue we will be working with the debtors
and the lenders and the UCC going forward in
advance of the final hearing, which you've tentatively
identified for early June. Thank you, Your Honor.
All right. Thank you. Ms. Ringer, another familiar
face. Good afternoon, Your Honor. Good afternoon.
I'm actually appearing in this case on behalf
of an ad hoc group of secured note holders. I
wanted to just appear quickly for the record.
We have no objection to the entry of the interim
dip order. We support its entry. I did just want
to note for the record that there are a couple
of items that we're discussing with the dip lenders
and the debtors. be able to get those resolved
before the final hearing. But I just wanted to
note that for the record and indicate that we're
supportive of the entry of the interim bid order
today. All right, thank you, Ms. Winger. Thank
you, Your Honor. All right, Mr. Hopkins, let
me turn back to you. I know Mr. Sponder raised
some specific issues. Yes, Your Honor. So let
me kind of take them a bit out of order. Sure.
So on Guggenheim's fees, There's actually language
in the bidding procedures order that addresses
that. As a general matter, they'll be paid out
of the proceeds of the sales, and the language
around that will be embodied in the sale orders.
So that's why they're not. The success fees aren't
in the carve -out because the idea is that they're
paid directly as the proceeds come in under the
applicable sale transactions. Just briefly on
the challenge period, Your Honor. So just a couple
things. So, you know, I think, you know, one,
all of the liens and claims here have been approved
pursuant to orders of this court. So while, yes,
everyone should get an opportunity to take a
look at those things, I think this is not a case
where it's going to be a complex analysis on
the validity of those liens and claims. The cases
do need to move quickly. 60 days is not a particularly
short period of time, particularly given that
there, you know, it's really only been a six
or seven month period that's gonna be relevant
to a challenge anyway. And, you know, I think
it's, given that the committee is gonna have
60 days, I think it is reasonable. And it's also,
you know, it could be part of it. To the extent
the committee does have an issue with it, we
can obviously address it together with the DIP
lenders between now and entry of the final order.
But with that, otherwise, and yes, we will address
Mr. Sponder's cleanup. Obviously, the order was
changing significantly in the lead up to the
filing. So that was our miss. On the comments
from McKesson's council, I'll just say that we
generally agree. We hope we can get things. Resolves
and but we obviously we know where to find your
honor And then finally, I always take great pride
in any kind of compliment from mr. Gold. So I
appreciate that Unless your honor has any other
questions for me I mean, I think our plan is
to to circulate an updated order. Obviously,
we got to get the banks to sign off on that We'll
send it to mr. Sponder so he can review how we've
incorporated his changes, but Unless there were
other questions for me, Your Honor, coming out
of the comments from the other parties, I think
that's all we have. Unless Mr. Ventola would
like to add anything here. I'll turn to Mr. Ventola
in a second. My only concern is, I guess it's
the downside of starting an afternoon hearing,
is we get crushed for time. And you all tend
to work much later hours than our court staff.
So we need to coordinate. If you need an order
entered, today, we need to at least focus on
trying to get it down to us as soon as possible,
coordinate with my chambers. I'll make sure that
the clerk's office knows it's coming. I believe
it's being updated in real time, Your Honor,
so hopefully this can all be done very quickly.
And we apologize for imposing on the court, but
we do need to... turn our bank accounts back
on in the morning and start getting money out
to keep operations running smoothly. Understood.
Just coordinate with my keep my chambers of what
you all do in the loop. Mr. Ventola? Thank you
your honor. I did want to address the challenge
period point as well. In light of how quickly
this case is moving, we do think having it triggered
off the interim order and or the appointment
of the committee, having the 60 days go from
then is important here. I will certainly tell
the court we are prepared to share perfection,
evidence, documentation to any committee. immediately
upon their appointment and I do understand that
the US trustee is moving quickly to get a committee
formed which we really appreciate but we will
not in any way be an obstacle to providing whatever
needs to be reviewed for people to get comfortable
with any challenge issues. And we, of course,
are quite confident there are no challenge issues
given what you've already heard and already know
about the lending facilities. And then just,
I also wanted to address the point that Mr. McCullough
raised with regard to Green Dot Bank. We don't
believe the debtors are granting liens on property
that is not theirs, nor could they, so we are
not seeking any liens against property not of
the estate. And again, if there's any other questions
you have, Your Honor, please let me know. Thank
you. All right, thank you. Mr. Sponger? Thank
you your honor Jeff Sponger from the office the
United States trustee your honor as you know
it is normal To have the 60 days from the final
order for parties and interest and then 60 days
from appointment of the committee With respect
to the committee my thought here is if your honor
wants to do something different is to make both
uh... sixty days from the appointment of the
committee uh... will try to get that in as quick
as possible i also realize that the second hearing
isn't going to be a total of six a month away
uh... so i i i understand that be a lot of time
but my thought was made as a compromise to do
sixty days for partisan interest in the committee
from the appointment of the committee thank you
all right thank you miss wonder uh... with respect
to the with respect to the challenge period yes
it is normal and the court supports normally
having that challenge period run from the final
order. I think it's a good thing we don't normally
have Chapter 22s. It's not something that we
strive for. But when we have it, the fact of
the matter is much of what's been put in place
as far as liens was a direct result of what went
on in the prior case a year and a half ago, or
if that long, or eight months ago. So it's a
narrow window to examine. It's a smaller path
to have to proceed upon by any committee. What
I'm going to do is order, include in the order
and permit the 68th challenge period to run from
the interim. If... During and if there's a problem
with the appoint and there's delays with the
appointment of a committee and the committee
has an issue and requires more time They can
get in front of me. I won't make sure that happens
and I'll hear why they need more time And if
it's reasonable, I'll address it but I Given
the circumstances of this case I think it is
appropriate to move forward quickly and I think
it's appropriate to start the clock with the
appointment of the interim with the execution
or the entry of the interim order. Most of the
other issues that have been raised will be addressed
as part of the final hearing. We'll fix that
for June 6th at 1130 and I will go ahead and
I will approve the finance on interim basis as
discussed and described. All right. I believe
that takes us to The, uh, fifth item on the agenda,
uh, and I'll hear from Denver's Council. Thank
you, Your Honor. I'll cede the podium to my colleague,
Nick Criswold. Great, thank you. Your honor Nicholas
Chris love all of ice those counsel to the debtors
The next item on the agenda is docket number
25, which is the closing procedures motion Your
honor we filed the form of order at docket number
60 and we will have some changes We've been in
discussions with a number of the stakeholders
and landlords trade counterparties in the US
trustee The revised order will reflect comments
from landlords regarding side letters, other
changes largely conforming to the orders entered
in the 2023 cases. Language reflective of discussions
with the U .S. trustee regarding the debtor's
consumer privacy policies as well as the payment
of the consulting fees. And then some certain
trade vendor language that also would be included.
One thing to flag, we've been in discussions
with Council to the dip agent and the consultants
and are tailoring additional functionality around
the consulting the consultants fees While we
are not yet finalized there the parties are in
close coordination and hope to come to a resolution
shortly after the hearing and we intend to submit
a proposed Consensual interim order along with
red lines once that it's been finalized your
honor the The relief requested under the motion
is substantially similar to the relief that was
granted in 2023 cases, and accordingly, we would
request that Your Honor grant this order subject
to, obviously, the caveat on the consultant's
PEPs. All right. Thank you. Mr. Sponder, any
issues you wish to raise? Thank you, Your Honor.
Jeff Sponder from the Office of the United States
Trustee. The United States Trustee has no objection
to the entry of the interim order as we understand
our requested revisions have been or will be
incorporated in the proposed interim order. Thank
you, Your Honor. All right. And I'm going to
keep moving forward with the calendar unless
I see raised hands. And since I see no raised
hands, then I'm going to grant the motion on
interim basis, final hearing. Same day, same
time, June 6, 1130. Thank you, Your Honor. Thank
you. I will hand the podium over to my colleague.
That chair is getting a workout. Good afternoon,
Your Honor. Claudia Tobler, proposed council
for the debtors. I'm here to seek entry of the
leaps and feet owned property auction and sale
motion, which is docket number 22. Like my colleague
who just presented the location sale procedures
motion, we did get numerous comments from various
stakeholders, including the U .S. trustees and
various landlords. I will say that we have incorporated
most of those comments into a revised form of
order. They address issues such as timing of
objections, notice, et cetera. These are procedural
motions that are intended to establish a streamlined
auction and sale process for leases and fee on
process properties as they become available from
the other sale procedures that have been previously
described. And a lot of the comments go around
providing a little bit more structure and transparency
around those procedures, especially as it relates
to notice. So I will have a few statements that
I'll make on the record that I think will supplement
what we've agreed to in connection with the revised
orders. In particular, and one thing that has
been mentioned earlier in terms of making these
various procedures relating to specialty leases
more synchronized, I can state on the record,
again, this is as it relates to docket number
22, that we will agree to extend the objection
deadline 14 days from the date on which the notice
of the auction and hearing are filed on the docket.
That's the general objection deadline to the
sale of the lease. Once a lease has been selected
for sale after an auction, there will be a specific
objection deadline three days prior to the auction.
It's based on the selected buyers, adequate assurance,
and similar other types of objection bases that
couldn't have been raised previously. Again,
we've spoken to various councils of the landlords.
We have also incorporated comments from the U
.S. trustee into the revised procedures. sure
as I sit here right now that we've resolved everything,
and I do want to make sure to give council opportunities
to raise anything that we haven't addressed to
the extent we haven't. I think it's just a matter
of wordsmithing, and I'm optimistic that we'll
be able to get your final revised form of order
addressing all of these points before the close
of business today. And with that, Your Honor,
unless you have any questions in terms of what
the motion overall provides, which is basically
a process very similar to what you would see
ordinarily for executory contracts except it
allows to bundle leases and fee owned properties
as again they fall out of the other processes.
We would ask for entry and approval of the order
on an interim basis with a final order to be
held entered and hearing held on June 6. All
right. Thank you. Let me go to the raised hands.
Mr. Fleischer. Good afternoon, Scott Fleischer,
Barclay Damon on behalf of a number of the letters
of landlords. We do appreciate the 14 -day clarification
because that was one of the issues that was still
pending when the hearing was beginning, so happy
to hear that part. It sounds still like there's
going to be potentially two objections that landlords
have to make. It's that initial one with 14 days
notice, but then if it's subject to an auction,
then there's some other sort of procedure that's
going along with it. And I understand they say
it would be three days prior to a sale hearing,
but it's sort of unclear how many days there
could be in between when an auction would end
and then. So I think we need some further clarification
that there would be due process on that point.
And really, that would be the portion where the
landlords really need the most notice, right?
Because that's when the proposed assignee is
going to be made clear when adequate assurance
information needs to be provided. So I just wanted
to get some more. On that one. All right. Thank
you. Ms. Heilman? Thank you, Your Honor, for
the record. Again, Leslie Heilman, Ballard Spar
on behalf of a number of the debtors landlords
as noted on the record earlier in this hearing.
Your honor, Mr. Fleischer has pointed out the
crux of the remaining issue on this. We have
worked with the debtors and they have incorporated
a number of comments that we raised prior to
the caring to resale procedures order. And we
don't take any issue with the debtors seeking
approval of procedures to run an auction process
and solicit bids for the sale of their leases.
And in my understanding of the timeline is that
for those auction procedures, they're proposing
that they file an auction notice that will identify
when the auction will be held and when objections
to the auction procedures will need to be raised,
which I understand that is. So it's my understanding
it's a 21 day notice process in which parties
will have 14 days to object to the notice and
auction procedure. So the notice of the auction
itself. What is missing from these procedures
is when there is a auction held and then there's
a notice of successful bidder. The procedures
are silent as to the time frame in which to notice
the successful bidder and to raise specific objections
to the successful bidder and get to a hearing.
So if I understand Ms. Togler correctly. They're
going to file a notice and we will have 14 days
in which to file general objections to any sale
and release and auction process. Then the auction
will be held and then there will be a further
time in which we'll have three days prior to
a hearing to object to the successful bidder.
Based on my calculations, if it's a 21 -day process
and the auction is held at or around the time
of the 14 -day objection deadline, that means
the auction only leaves seven days before the
sale hearing. So if we have a successful bid
notice filed on the 14th day, that only gives
us less than seven days prior or four days in
which to object to the actual successful bidder.
And this is a little different than the sale
processes that were approved by Your Honor in
the first case, as well even with connection
with the expedited bidding procedures that are
being approved for the sale of the pharmacy assets
and the remaining assets. What these procedures
set up is for a sale of leases either on an individual
basis or lots of leases or designation rights
to third -party assignments who are not going
to be continuing to operate pharmacies. and who
are so there's a lot more that goes into and
we need the time from the time the successful
bidder is identified in which to have adequate
and reasonable notice. This process has been
approved recently as recent and similar processes
in Big Watts, Joanne's and Party City where there
has been numerous rounds of Mesa's soul. And
in each of those, there was 14 days or 21 days
notice of those actual sales in which we went
from an auction or a notice of a successful bidder
to final approval bias at a sale hearing. And
we needed each, I can assure you, Your Honor,
we needed every day of that notice because we're
looking at essentially a mini, potentially a
mini contested trial with respect to each and
every lease. and each and every assignee. And
there was over 240 maces sold in Bay Blot. There
was over, I'm sorry, it was 300 and some in Bay
Blot, over 240 maces in Cardi City. And those
weren't just to a single buyer. They were to,
at any given time, we had 10 maces in play in
which were being sold to 10 different buyers.
So the point in time from the time the successful
bidder is identified, to a potential hearing,
Your Honor, is the timeframe that we are most
concerned about and the procedures are silent
and actually just lead to the discretion of the
debtor to establish a timeline on some reasonable
notice that they believe is reasonable for the
net. So that is our issue, Your Honor. I think
that in order to harmonize the different procedures,
we would... we would at a minimum require at
least 14 days notice from the time the successful
bidder is identified in which to object. And
in the other processes that have been held, is
a hearing was only scheduled if necessary, if
an order, a consensual order couldn't be reached.
And that was on, I think, seven or 10 days notice.
of a hearing date. So we don't necessarily need
to set a hearing on at least asset sale procedures
today, but we do need at least adequate notice
of who the buyer is, what the cure is, what their
adequate assurance is, and then a reasonable
period of time in which to review that and raise
objections if necessary. All right. Thank you.
Thank you for clarifying. Mr. Gold, and then
I'll get to Mrs. Fonder. Thank you again, Your
Honor. Ivan Gold for a number of the debtors'
landlords. I would just like to join in Ms. Heilman's
comments and note to the court that the simplest
way to look at how these procedures are different
is, as Ms. Heilman said, these are harder assignments.
The first round is pharmacy buyers. The use under
shopping center leases is going to be the same.
These are the processes where a pharmacy buyer
did not take the lease. So again, depending on
the lease terms, we could see a multitude of
potential alternate uses being proposed for literally
hundreds of leases from this debtor and compressed
the time period to deal with the broader list
where a significant number of the debtors leases
are subject to the heightened shopping center
standards. A quick runway of single digit days
and not even business days, but calendar days.
Under the three days the debtors have thrown
out there, it literally could be the old Friday
to Monday. And the issues that would be confronted
in these lease sales are more complex and more
varied than would be presented in the first round
where we got 14. So I think that's the lens you
should look at this. We understand the need to
liquidate these assets for the benefit of multiple
stakeholders in this case. But when you consider...
arranging for witnesses, arranging for negotiations
to avoid taking time of your honor. When your
practice teaches us if a deadline is three to
five days away, particularly if it's an intervening
weekend, you just file an objection because you
got to, as opposed to taking time to potentially
work out a consensual structure. So I just want
to echo Ms. Heilman's comments and point out
to your honor, these are the hard ones. Thank
you. All right, thank you. Before I address those
issues, Mr. Sponder? Thank you, Your Honor. Jeff
Sponder from the Office of the United States
Trustee. Your Honor, no objection to the entry
of the interim order as the U .S. Trustee requested
revisions have been or will be incorporated in
the interim order. Thank you, Your Honor. All
right. So it sounds like we're close, but there
needs to be some tweaking or some more work done.
I think Ms. Tolley acknowledged it. I have a
calendar tomorrow as well. To the extent the
parties can't agree on language for an interim
order and you can get it down to us today, great.
We'll enter it. If you can tweak it tomorrow
morning, great. If you need or if you want the
court, with respect to the interim order, to
come down and decide if there's an issue that...
you can't resolve, it has to be included in the
interim order, then I'm going to leave open 1130
tomorrow morning after my ordinary Thursday morning
calendar and I can address this or if we have
other motions, just language issues or you need
the court to make a call. For the most part what
I'm hearing is nobody's really jumping up and
down against the order, the interim order. It's
just concerns on some of the timing as part of
the process. If the parties can agree, great.
If not, I'll make the call tomorrow if it can't
wait until the final hearing. All right? So we'll
mark it granted in order to be submitted, but
you'll let my chambers know with this or any
other motion coming down the pike this afternoon
if you need the court's attention additionally
tomorrow. Hopefully it'll get resolved. So before
we get to the seventh matter on the agenda, my
staff here needs to take a five -minute break.
So we'll just put you all on hold. Don't go anywhere.
We'll just turn off the video and the audio.
Thank you. Be back in five. Thank you, Your Honor.
Thanks. And we are back. But everybody else...
Come back as well Looking for debtors council
who wants to There we go who's taking the chair
Your honor, please get in from coal shots If
we're ready to move on to the next agenda item,
Mark Zuckerman from Cole Shots is going to handle
the next item on the agenda, which is number
seven on the agenda. We are ready. Mr. Zuckerman.
He has to. Can't hear you. There you go. Can
you hear me now, Your Honor? Yes, we can. Thank
you. Good afternoon. Good afternoon. For the
record, Mark Zuckerman from Cole Shots. for the
debtors. Your honor, I'll be presenting the cash
management motion and the wages motion, which
are numbers seven and eight on the agenda. Hopefully,
I think we'll be able to go through these two
pretty quickly. Starting with cash management,
which was filed as docket number 23. Your honor,
the debtors are seeking authority to continue
using their cash management system in the ordinary
course. I'll just say that the cash management
system is substantially the same as when the
debtors filed in 2023, except simplified because
they sold the Elixir business. So there are now
only four non -debtor accounts. They're all with
Elixir Insurance Company, and there's the minimus
activity, and the debtors don't expect to have
any cash transactions with those accounts. We've
provided the U .S. Trustee's office with a draft
of the motion before it was filed. uh, we incorporated
their comments to the interim order. Um, so unless
there are any other comments, Your Honor, we'd
ask that the, um, interim relief be granted and
the proposed interim order be entered. Mr. Sponder.
Good afternoon, Your Honor. Jeff Sponder from
the Office of the United States Trustee. Um,
as I'm gonna say to most of these, um, motions
and orders, Your Honor. We have no objection
to the entry of the interim order, as we understand
the U .S. Trustee requested revisions have been
or will be incorporated in the interim order.
Thank you, Your Honor. All right. I'll just check
in with you with each one. Thank you, Your Honor.
Mr. Vandola. Thank you, Your Honor. John Ventola
on behalf of Bank of America. We don't have any
comments on the order, and we certainly support
its entry. I would just ask, Your Honor, at the
risk of imposing on you and your staff, this
is another order that would be good to get entered
today, in conjunction with the dip, just to make
sure there's no interruptions or the like in
the debtors' banking services. So otherwise,
we support the motion, the order as is. Thank
you, Your Honor. Our goal is to get them all
entered today. Great, thank you. What I'm going
to ask is debtors council, do it collectively.
I don't want it to come in on a rolling basis
because then we just never know when there's
another order coming in. Send them all to us,
send it down to our chambers email address. Our
staff can get, with just a note that they've
all been agreed to or or the original without
any modifications. And we'll get them entered.
Number eight, Mr. Zuckerman. Thank you, Judge.
Next up is the wages motion that was filed as
docket number 14. First, I'd just like to thank
the court for entering the emergency, what I'll
refer to as the emergency payroll order. The
company needed that order entered to ensure that...
payroll checks that I had issued would be honored
during this lag period between the petition date
and entry of an interim order. So thank you for
that. Your honor, goes without saying, the debtor's
employees are the lifeblood of the company. The
importance of the employees to this process can't
be overstated. We're seeking authority to continue
and pay associate compensation and benefits in
the ordinary course during the interim period.
We're not seeking authority to pay any insiders
and we're not seeking authority to pay any amounts
in excess of the statutory priority caps during
the interim period. Again we provided the US
trustee's office with a draft of the motion before
it was filed and incorporated their comments
before it was filed. So unless there are any
other comments or questions we would ask that
the court grant the interim relief and enter
the interim wages order. Mr. Sponger. Thank you
your honor Jeff spawner from the office the United
States trustee no objection to the entry of this
interim order as We understand that the u .s.
Trustees requested revisions have been or will
be incorporated into the interim order. Thank
you all right Motion is granted. Thank you Thank
you judge with that. I am going to turn the virtual
podium over to my colleague Miss Hartlett who
will be taking the next items on the agenda All
right, thank you. Good afternoon, Your Honor.
For the record, Melissa Hartlip of Cold Shots
proposed co -counsel to the debtors. Thank you
for accommodating our schedule this afternoon.
And this is my first time appearing in this district,
so it's a pleasure to be here. Welcome. Thank
you. First on my list of items before you today
is the debtors' motion authorizing the debtors
to file consolidated lists of their 50 largest
unsecured creditors and their creditor matrix
and to redact certain personally identifiable
information related to the individuals. This
is found at agenda item number nine and docket
number five. Importantly, we worked with the
Office of the United States Trustee in advance
of filing and I believe agreed upon the language
in the proposed order that was attached to the
motion that was filed and unless your honor has
any further questions we would respectfully request
entry of the interim proposed order seems mr
sponder thank you your honor jeff sponder from
the office of the united states trustee as you
suspect uh your honor no objection to the entry
of the interim order as the u .s trustee requested
revisions have been it will be incorporated into
the interim order thank you your honor should
just have that as a screen saver all right granted
Thank you. Next I turn to agenda item number
10, the debtors request for an extension, the
deadline to file their schedules and statements
of financial affairs. This is found at docket
number seven in this order that debtors request
a 28 -day extension to file their statements
and schedules and this would push the deadline
to June 20th. We have agreed upon the state with
the Office of United States Trustee and accordingly
respectfully request entry of the proposed order.
Any change to the time frame? Mr. Sponder? Thank
you, Your Honor. Jeff Sponder from the Office
of the United States Trustee. Yes, the time frame
was changed to June 20th and agreed upon. Just
to alert the court, the United States Trustee
may conduct a 341 without the schedules in early
June. Just, you know, we knew we couldn't get
it done before the first sale, but we can try
and get it done before the second sale. I just
wanted to put that out there, that that might
be what our plan is for this. But June 20th for
schedules is fine and we have no objection to
the entry of this order, Your Honor. Great. Thank
you. Makes sense. Motion granted. Thank you,
Your Honor. Next, I turn to the debtor's application
to appoint Kroll as their claims noticing agent,
found at agenda item number 11 and docked at
item number 18. With respect to this application,
a declaration from Benjamin Steele was filed
in support of the application and attached to
the application as Exhibit B. At this time, I
would like to move that declaration into evidence
as necessary. Motion granted. Thank you. And
we would also respectfully request entry of the
order related to Kroll's protection application.
Yes. Thank you. Is this Sponda or Eddie? Did
you have an issue with it? Thank you, Your Honor.
Jeff Sponda from the Office, United States Trustee.
We did not have an issue with the order. I believe
all of our revisions were made, so they were
incorporated. So we don't object to the entry
of this interim order. Thank you, Your Honor.
Great. Thank you. Next, I turn to the debtor's
utility matching, which is filed at docket number
12 and is also listed as agenda item number 12.
Through this motion, the debtors seek to establish
an adequate assurance account and approval of
related adequate assurance procedures. We have
received some comments from certain landlords
and have revised their proposed order to address
those comments, which will be submitted to Your
Honor. And with these changes, we believe that
this motion is fully conceptual, and unless Your
Honor has any further questions, respectfully
request entry to the proposed order. All right,
I don't see landlord's counsel with raised hands.
Mr. Sponder. Thank you, Your Honor. Jeff Sponder
from the Office of the United States Trustee.
And I'm sorry to do this, Your Honor, but now
that I thought about it, going back through several
of these orders, they are interim orders, so
there are going to need to be final hearings.
And I would propose the same date of June 6th
at 1130 for, let's just say, all of the interim
orders. I apologize for not mentioning that because
I know some of them got changed from regular
orders to interim. Well, actually I was going
to raise it because you mentioned it with the
appointment of Kroll. Is Kroll an interim? Kroll
is not an interim, Your Honor. I believe rejection
is not an interim. So there are some that are
not interim. But I know the ones that we just
went through, other than the noticing claims
agents and the extension of file. So credit or
matrix, wages and cash management, I believe
are all interim orders. um to clarify yeah um
and we'll use that june 6 date at 11 30 for all
for all of them thank you thank you for bringing
that up As for utilities, Your Honor, I was busy
with the dip the last day or so. So I had a question
for debtors council, which was whether or not
the amount of the adequate protection was included
in the motion or in the order. So just if they
can confirm that, as long as the amount's there,
I didn't have any issue with the amount. I just
thought it needed to be in there. Thank you,
Your Honor. Yes, Your Honor, I can confirm that
we included the amount in both the motion and
the proposed order. Great. All right, then granted
as an interim. Thank you, Your Honor. And finally,
last on my agenda before you today is the debtor's
motion to reject certain executive contracts
and leases affected as of the petition date,
which is item number 13 on today's agenda and
found at docket number 21. through this order,
the debtors request to reject certain contracts
and a limited number of leases effective as of
the petition date. We have received some comments
from landlords related to if the debtors have
surrendered the relevant premises as of the petition
date. We have inserted language into the proposed
order which will be submitted to Your Honor that
we believe addresses those concerns and unless
Your Honor has any further questions, we would
respectfully request entry of the proposed order.
All right, Ms. Raviella, I hope I'm pronouncing
it right. Can you hear me, Your Honor? Yes, I
can. Thank you. Thank you, Your Honor. Jennifer
Ravelli of Kelly Dry and Warren on behalf of
certain landlords in this case. Your Honor, prior
to today's hearing, we reached out to debtors
council and attempted to resolve our concerns
with many of the orders. We appreciate their
inclusion of those comments. As it relates to
the rejection order, I rise to note a couple
of points. Given that we're only a couple of
days into the case, we're still working with
our clients to determine if this motion actually
impacts any of their locations. But since it's
a final order, we feel it's necessary to make
a clarification at this point. The change to
paragraph seven, I believe, in the... Let me
make sure I have the number right. Sorry, it's
paragraph nine in the revised version of the
order, if your honor has that one. Okay. That
was a clarification to resolve a concern we had,
which was that this order, it's a final order,
it provides that the rejection is effective as
a petition date, but we don't yet have confirmation
that all the locations were actually vacated
as of that date. So this is sort of a compromise
that to the extent our client is impacted by
the motion, but the premises actually hasn't
been surrendered, they can go in and re -key.
And we would just reserve the right to the extent
that that factual situation arises to potentially
bring that issue back in front of your honor
if we believe that a different rejection date
is appropriate at that time. I don't think that's
going to happen. I just wanted to note on the
record that since we are doing this at a pretty
fast pace on the first day, to the extent we
find that out, we would just reserve our right
to bring that back before the court. All right.
You don't need that language in the order. You
just want a record? Right. And then the second
issue, Your Honor, and now we're looking at paragraph
12 and the revised order, original paragraph
10. This is sort of the dip order paragraph,
I'll refer to it as. We had asked that the debtors
would strike the last sentence of this paragraph,
which says, to the extent there is any inconsistency
between the terms of the dip order and disorder,
the terms of the dip order shall control. We
just don't believe that's appropriate in a lease
rejection order. Is there something in this order
that they believe there is a conflict with the
DIP order? We'd like to know now to resolve that
issue. I'm not sure I raised that issue with
debtors council prior to the hearing and I don't
know if they have resolved it or been able to
strike that. All right well here before I turn
back debtors council let me go to Mr. Fleischer.
and see if, so that at least debtors council
can address all the issues. Mr. Fleischer. Thank
you again your honor, Scott Fleischer, Barclay
Damien on behalf of a number of the debtors landlords.
We have a client with a location that's on this
projection motion and do appreciate the language
that went in there on being able to re -key now.
I was getting some emails on that property during
the hearing and it appears that they're still
trying to auction off some of the FF &E. that's
remaining in there. So again, similar type of
issue. We're fine, right, with being able to
just go in and rekey now. We don't want someone,
right, an employee of write8 or otherwise sort
of with a different idea about the premises.
So if we got some clarity on this one in particular,
that's fine. Maybe we can take this one out of
the order for now and make sure. that can be
dealt with appropriately, but wanted to raise
that specific issue. This is a location that's
in Keene, New Hampshire. All right. And Mr. Sponder.
Thank you, Your Honor. Jeff Sponder from the
Office of the United States Trustee. Your Honor,
we had no objection to the entry of this interim
order or to this order. as our changes were going
to be included, I kind of jumped ahead there
that maybe perhaps based on these issues that
this should be maybe an interim order. But I'll
leave that to the other parties. Thank you, Your
Honor. Thank you. Ms. Hartlip? I'm sorry. Ms.
Hartlip, what's your preference? Should it be
an interim order to give you time to address
these issues? I believe our preference is to
have an order entered today. To the extent that
there's specific issues, like with respect to
the Keen New Hampshire store, we can serve up
with the debtors, advisors, and Mr. Flesher offline
to confirm that information prior to submitting
the order to your honor. And with respect to
Ms. Reveal's concerns regarding the dip order
language, I believe that we are confirming with
the lenders that that modification of language
is acceptable, and that was also something that
we addressed prior to submitting to Your Honor.
All right, well then we'll talk this up to, you'll
agree on the language. If there's a problem,
we can address it tomorrow. You'll let my chambers
know. All right? Yes. Thank you, Your Honor,
and unless you have any further questions subject
to agreement upon that language, we would request
entry of that order. The motion will be granted
or to be submitted. If there's an issue, we'll
take it up tomorrow. Thank you. Thank you, Your
Honor. And with that, that concludes the matters
that I have before you today, Your Honor, and
I would like to speak at the virtual podium to
my colleague, Bryant Sherbrooke. All right. Thank
you. Number 14, I believe. Yes. Good afternoon,
Your Honor. Can you hear me okay? I can. Good
afternoon. Good afternoon. I'm going to be presenting
the next three items on the agenda, beginning
with item number 14, which is the debtor's insurance
motion, which appears at docket number 11. The
debtors are parties to various insurance policies
and surety bonds, which are listed in Exhibits
C and D of the motion. Those items are standard
in the debtor's industry. As a practical matter,
those insurance policies and surety bonds are
necessary for the debtor's ongoing operations
and in certain circumstances are required by
operation of law in the jurisdictions which they
operate. The debtors seek authorization to satisfy
any amounts owed under those policies and surety
bonds pre -petitioned and to continue performing
their obligations on a post -petition basis.
We circulated a draft of the motion to the Office
of the United States Trustee prior to the petition
date and have incorporated the U .S. Trustee's
comments. And unless there are any additional
questions regarding this motion, we would request
entry of the interim order. All right. Mr. Spodder?
Thank you, Your Honor. Jeff Sponger from the
Office of the United States Trustee. We have
no objection to the entry of the interim order
as was just stated that we believe our revisions
have been or will be incorporated into the interim
order. Thank you, Your Honor. All right. Thank
you. Motion granted. Order to be entered. Order
to be submitted. Thank you very much. The next
item on the agenda is item number 15, which is
the debtors critical vendor motion, which will
be found at docket number 16. The debtors seek
to pay certain pre -petition amounts owed to
various critical vendors. The debtors are in
the business of providing retail pharmaceutical
products to people, their customers. It's integral
that these vital items be continued to continue
to be provided to the debtors' customers. The
debtors are seeking to pay $3 million, up to
$3 billion, to their critical offenders. All
of that is up front in the interim order. We
circulate a draft of the critical offenders'
motion to the Office of the United States Trustee
prior to the petition date. And we've incorporated
the U .S. Trustee's comments. And unless there
are any other questions with respect to the motion,
we would respect the interim order be entered.
Mr. Sponger? Thank you, Your Honor. Jeff Sponda
from the Office of the United States Trustee.
Your Honor, no objection to the entry of the
interim order as the U .S. Trustee requested
visions have been and will be incorporated in
the interim order. With that said, Your Honor,
we're not sure that there should be many critical
vendors concerning the posture of this case,
or there should only be a few. Thank you, Your
Honor. Thank you. Makes sense. We'll leave the
final hearing for June 6th, 1130. We'll mark
this order to be submitted. Thank you. Thank
you, Your Honor. And then the last item that
I will be presenting today, which is item number
16 on the agenda, that's the debtor's customer
programs motion. The debtors seek to continue
certain customer programs as amended and described
in the motion on a post petition basis and to
honor any pre -petition obligations listed in
the motion. The highlight items, so to speak,
are to take gift cards issued by the debtors
for the next 30 days after entry of the interim
order, and the debtors will continue to accept
returns over that same 30 -day period. The debtors
will provide notices on their website in their
stores and at their cash registers of the change
in these respective policies. We submitted a
draft of the motion to the office of the United
States trustee prior to the petition date and
We have incorporated the various comments of
the US trustee in a revised order Unless your
honor has any additional questions regarding
the motion. We respect entry and we request entry
of the interim order Mr. Sponder, thank you counsel.
Mr. Sponder Thank you, your honor Jeff spawner
from the office the United States trustee your
honor with respect to the customer programs or
Interim order we have no objection to the entry
the interim order as we understand our revisions
are going to be incorporated But your honor I
have no problem doing the same thing for the
next five or six the last of them But my answer
for all of these are is going to be the same
that we have no objection to the entry of taxes
rejection procedures Diminished asset transactions
record date claims trading and the NOL or order
interim orders being entered as our, I believe
our revisions have been incorporated. Thank you,
Your Honor. We could have cut down a half hour
on this if we did this earlier. Thank you, Your
Honor. Thank you. At this time, I would like
to pass the virtual podium to my colleague, Andreas
Milioreses. All right. Good afternoon, Your Honor.
Andreas Milioreses. cold shots, PCA appearing
on behalf of the debtors. The first, I'll be
presenting the balance of the motions today.
The first motion that I'll be. Presenting is
the debtors motion for interim and final orders
authorizing the debtors to remit and pay taxes
and fees in the ordinary course and to engage
in tax planning activities which was filed at
docket number six. The debtors estimate that
as of the petition date they owe 41 .3 million
in accrued but unpaid taxes and fees of which
19 .8 million will become due in the interim
period. As your honor is aware this motion was
circulated to the U .S. trustee their comments
were incorporated prior to filing and unless
you're Honor has any questions, we would respectfully
request entry of the order. Granted. Next. Great.
The next item on the agenda is the debtor's motion
to establish procedures to reject, assume, or
assume and assign, executive contracts and unexpired
leases filed at docket number 15. As noted earlier
on the record, based on comments received from
certain parties since filing, the debtors have
agreed to remove the assumption procedures from
the request of relief. So the proposed form of
order will only include procedures to reject.
The proposed order was also circulated to the
U .S. Trustee. Their comments to the order have
been incorporated. And unless Your Honor has
any questions, we would respectfully request
entry of the interim order as revised to remove
the assumption procedures. All right. Granted
as revised. Thank you. The next item on the agenda,
Your Honor, is the de minimis assets motion.
which was filed at docket number eight. The debtors
by this motion seek to establish authority to
use, sell or transfer de minimis assets to a
buyer or group of related buyers with an aggregate
sale price of less than five million. The debtors
also seek procedures to abandon assets which
cannot be sold at a price greater than the cost
of liquidating such assets or which are no longer
needed for the debtor's operations. The debtors
submit that these procedures will provide an
efficient process by which the debtors may engage
in de minimis asset transactions while providing
adequate notice to the parties. Again, we circulated
this order to the U .S. Trustee's office. We've
incorporated their comments. We've also incorporated
comments received from various parties since
the filing. And unless Your Honor has any questions,
we would respectfully request entry of the interim
order. All right. Mr. Fleischer. Yes, sir. I'm
against Scott Fleischer, Barclay Damon. Just
a clarification for this one. We had received
from the debtors to be clear that no leases would
be proposed to be assigned under this order as
well, just to not write clouded and leave it
to the motions we've described earlier. So just
wanted to put that on the record and make sure
the agreement was clear. We're not going to squeeze
in a lease under the de minimis assets. Right.
Incorporated language should provide for that.
All right. Thank you. Thank you. Thank you. The
next motion on the agenda is the debtor's motion
for interim and final orders establishing a record
date for notice and sell -down procedures and
procedures for notification and trading and certain
claims against the debtor's estates which was
filed at docket number nine. The purpose of this
motion is to establish procedures that will allow
the debtors to monitor claims against the estates
so that the debtors can preserve their tax attributes
for potential future use. This interim order
again includes comments from the Office of the
United States Trustee, and unless your honor
has any questions, we would respectfully request
entry of the order. I don't have any questions.
I've entered this order countless times. I'm
not sure I ever really understood it. That's
motion granted. Thank you, your honor. The final
motion on the agenda. is the debtor's motion
for interim and final orders approving notification
and hearing procedures for certain transfers
of and declarations of worthlessness with respect
to the debtor's common stock, which was filed
at docket number 10. Similar to the claims trading
motion, this motion will set procedures that
will allow the debtors to monitor trading and
common stock of the debtor new Rite Aid LLC to
maintain tax attributes for the debtor's future
use. Again, this order was shared with the United
States Trustee. Their comments were included.
And unless Your Honor has any questions, we would
respectfully request that the Court enter the
interim order. All right. Well, thank you, Mr.
Miller. Your motion is granted. The Court will
enter the order. With that, Your Honor, that
concludes our presentation on the orders that
are before you today. I will turn the podium
over to pro -counsel if they want to address
anything on the record. I believe we've set the
final hearing on these motions. Yes, June 6th.
Ms. Eaton? Thank you, Mr. Miller. Ms. Eaton,
anything else to follow up on? Just one item,
Your Honor. I believe just for the good order
of the record. We know that there are several
pending appeals from the prior bankruptcy case,
as well as various motions that are pending.
It's the company's view that all the activity
from the prior case has stayed. And we did not
ask, Your Honor, for a comfort order of any sort,
but I just would like the record to reflect,
if you agree, that those matters are stayed and
will be addressed later in the course of this
case as required. Thank you for that. It's important.
I know my colleagues on the district court have
matters on their plates with pending appeals.
They need to know what to do or what needs to
be done or what doesn't need to be done. The
same for my chambers receiving calls on pending
matters. So the court takes the view at this
juncture that they are stayed. I see hands raised.
Mr. Tarosian. Good afternoon, your honor. It's
good to see you again. Jeff Tarosian for Med
Impact. I have not filed a formal appearance
in this matter yet, but we've been watching to
hear if there was any mention of the appeals.
We take a different view. The appeals are that
the new bankruptcy does not constitute an automatic
stay against the pending appeals because the
pending appeals are appeals from motions brought
by the prior debtors to enforce orders against
Med Impact, and Med Impact is appealing that.
So those were not cases where Med Impact was
suing the debtors, the prior debtors, or the
current debtors. Those are appeals of actions
brought by the prior debtors against Med Impact.
So we don't believe the current case has an automatic
stay that would affect those appeals. Fair enough.
So I'm not going to make a call, obviously. I'm
not even sure which court has jurisdiction to
make that call, given normally a bankruptcy court
loses jurisdiction over a matter once it's subject
to an appeal. It may be that you all have to
debate that one out in front of the district
court. I primarily wanted it was focusing on
I have several claims objection, cure objections,
and the like. But your concerns or reservation
of rights, we'll call it that way, our position
is noted. And I'm sure my colleagues in the district
court can address it. Thank you. Thank you, Your
Honor. Good to see you again. Good to see you
again. Anyone else? Ms. Eaton. So your honor
we've we've concluded everything for the day
and I just want to thank you and your chambers
for accommodating our our Last -minute requests
all of your time today working late getting these
orders entered. We are we are deeply appreciative
of your assistance today So that's all the debtors.
Thank you. My pleasure I'm going to work under
the assumption that I will not be seeing you
all at 1130 that you'll hash out Any issues that
remain with language, but if the court is needed
we are available As again, just send please send
down all the orders Well, we'll coordinate with
Cole shots to make sure you get Singular emails
instead of multiple emails. Thank you. Appreciate
it. Take care folks court is adjourned Thank
you