Rite Aid Bankruptcy Shows Defaults Worsening

The number was just shy the 518 bankruptcy filings in the first nine months of 2020, when the Covid-19 pandemic forced many companies to shut business and strained their cash flows. Besides 2020, this year’s bankruptcy toll has been the worst since 2010.

Cases of insolvency have ticked up this year as companies are squeezed by economic conditions and monetary policy. Soaring inflation has made consumers more cautious about spending, cutting into sales and earnings, while the Federal Reserve’s interest-rate hikes made refinancing debt more expensive for companies.

Lacking liquidity, firms with weaker balance sheets are especially vulnerable to debt defaults. Last year, Barron’s flagged seven companies at risk of a liquidity squeeze—ones with weak cash balances and high short-term debt. Three names on the list have already gone bust this year, including Rite Aid.

The pharmacy chain has long struggled with declining business, dwindling stores, and negative earnings, which was further aggravated by a number of lawsuits related to its role in the opioid epidemic. Rite Aid said it would close more stores following the bankruptcy filing.

The drugstore’s trouble was the latest toll to 2023’s pain. The consumer-discretionary sector suffered the most, threatened by both e-commerce disruptions and shoppers’ tightening belts amid inflation. As of September, at least 64 companies in the sector have sought bankruptcy protection, followed closely by healthcare and industrial firms.

Including Rite Aid, 18 of the insolvent companies this year had liabilities of more than $1 billion at the time of their bankruptcy filings, according to S&P Global. Some of the most notable examples include
SVB Financial
in March,
Bed Bath & Beyond
in April, and
SmileDirectClub
in September.

Write to Evie Liu at [email protected]