Rite Aid (NYSE:RAD) stock is advancing 2% in morning trading as of this writing. This comes after RAD stock plunged some 50% on Friday. Shares of Rite Aid tumbled last week amid reports that the retail chain, which has been besieged by legal troubles due to its role in the opioid crisis, will soon declare bankruptcy.
What else should investors know about RAD? Let’s take a closer look.
RAD Stock: A Bankruptcy Filing May Be Imminent
On Friday, citing unnamed sources, The Wall Street Journal reported that Rite Aid would seek bankruptcy protection in the coming weeks “to address mass federal and state lawsuits the drugstore chain is facing over its alleged role in the sale of opioids.”
Indeed, the drug store chain already has over $3.3 billion of debt and is still facing lawsuits from Washington as well as “state government and private opioid plaintiffs.” Apparently, the retailer will have to cope with about 1,000 suits in federal court and another roughly 1,000 lawsuits in state courts.
In the past, Rite Aid has stated that the lawsuits may “exceed any applicable insurance coverage” and could “significantly impact” liquidity.
The company’s law firm, Kirkland & Ellis, helps some of its clients file for bankruptcy.
Rite Aid did not respond to WSJ’s request for comment on its report. However, the company did tell Yahoo Finance that it has “closed 239 stores since 2021.” Rite Aid continued:
“Like all retail businesses, we regularly review each of our locations to ensure we are meeting the needs of our customers, communities and the overall business.”
Rallies After Other Bankruptcies
Of course, the shares of two other bankrupt companies — Bed Bath and Beyond (OTCMKTS:BBBYQ) and Yellow (OTCMKTS:YELLQ) — jumped in the wake of their own bankruptcy filings this year. However, BBBYQ stock has sunk around 30% just in the last month. Generally, the stocks of bankrupt companies become worthless eventually.
Like Rite Aid, flexible workspace provider WeWork (NYSE:WE) may be the next firm to declare bankruptcy soon.
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On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
