American court hearing recordings and interviews - Rite Aid bankruptcy court hearing audio, October 16, 2023

Episode Date: October 17, 2023

For more information about the bankruptcy proceedings see https://restructuring.ra.kroll.com/RiteAid/

Okay, good afternoon, everyone. This is Judge Kaplan, and we will start this afternoon's hearing with respect to right aid. Oh, it would help if I start the video. There is one thing I forget. There I am. All right. We have a filled courtroom, as well as counsel appearing remotely. they have requests those who have requested

presenter status those who have appeared in front of me know all too well I don't want to go through notices of appearance for every hearing just delays it but I think it's appropriate to do it for the first hearing so let's start with on behalf of the debtor good afternoon your honor Michael Sorota Warren Usatine and Felice Yutkin from coal shots

proposed co-counsela to the debtors. Hold on one second. Sure. I don't hear. Do you hear it, Kia? You could hear it through the speakers? Okay.

Sorry. And Your Honor, it's my privilege to introduce Mr. Joshua Sussler and Ms. Aparnia Janamandro. And what we'll do, if it's okay with the court, is as we start the proceedings, Mr. Sussberg, will take us out. And he will introduce the various presenters from the Kirkland team. All right. That sounds fine. Welcome, everyone. Other appearances for those who are in court.

Good afternoon, Your Honor. Alan Brody, Greenberg-Trary, on behalf of Bank of America. Your Honor, it is my privilege to introduce my co-counsel from Schote, Holland Stewart, John Ventola, Mark Silva, Kevin Simard, Jonathan Marshall, Rick Blyde, and John Paul Gillette. They have filed Prohavice motions. Of course, we asked for today that they'd be allowed to speak. Absolutely. Welcome to Trent.

Thank you. Thank you. Mr. Di Pasquale, good afternoon. Good afternoon, Your Honor. Joseph DePasqual of Fox Rothschild, co-counsel for the ad hoc group of secured note holders. In court with me today is my partner, Howard Cohen, ProHawk application pending.

It's a pleasure to introduce our co-counsel, Paul Weiss firm, Andrew Rosenberg, and Christopher Hopkins, ProHoc application pending. Any other permission to have them present to your honor today. Absolutely welcome. Thank you. Thank you.

Mr. Schwartz, good afternoon. Excuse my voice. I'm a little bit under the weather today, but Joseph Schwartz, Riker Danzig. I'm here with my colleague, Tara Shelhorn, also Riker Danzig. We represent the Bank of New York Mellon. Bank of New York Mellon is the indenture trustee and notes collateral agent under two separate issuances. There's a 2026, 8% notes. $850 million principal issuance.

There's a $320 million, $7.5. Senior Secure Notes that are due July of 2025. Just so the record is clear, Mr. DePasquala, Fox Rothschild, and the Paul Weiss team are the ad hoc group that represent a large portion of our notes. All right. Thank you. Mr. Sedano, good afternoon. Good afternoon, Your Honor. Anthony Sedano, McManaman, Scotland, and Bowman.

on behalf of McKesson Corp and affiliates. And, Your Honor, I'm pleased to introduce from Buckalter PC, Jeff Garfinkel. Welcome. And from Sidley, Austin, Your Honor, Dennis Toomey, and John Custer. We have filed ProHawcci applications for Mr. Garfinkel, Mr. Toomey and Mr. Custer, Mr. Cromwell, and Andres Braja. All right. In addition, Your Honor, we are filing as we speak under seal. opposition to the restraints.

We are going to email to your clerk, the pleadings. We're going to have hard copies delivered shortly. We're also, we'll simultaneously email Cole Schatz and Kirkland, indicating that it's confidential and privileged. I want to let Your Honor know that that's coming. Thank you. Thank you, Your Honor. Real time practice a law.

Fine. Thank you. Thank you, Your Honor. Good afternoon, Your Honor. Leslie Heilman of Ballard Sparr, representing a number of landlord creditors the debtors including Brixmore operating partnership, CP Grellis Partnership, Culver Tropical Gardens Company LP, Fairview Shopping Center, Federal Realty, Irvine Company, River Works, LLC, and Spirit Realty Capital.

Since we filed our parents last night, we've also been retained by Hattensky Capital Partners as well as UBS Investment Trust. With me today also is Ivan Gold, Val Allen Matkins. from your local council to Ivan Gold and our welcome to us. Welcome, counsel. Thank you, Your Honor, and good afternoon. Ivan Gold of Alan Mackins. I'm here for a number of landlords, including Merlin Geyer Partners, Clary and Partners,

and Jasper Legacy, Zenmeier Properties, and Redwood Urban, and to your comment about the real-time practice of law, the Prohawk materials are in motion, and we will catch up to the rest of the proceedings. It's understood. Thank you. Thank you. Good afternoon, Your Honor. My name is James Donahue. I'm here on behalf of the Commonwealth of Pennsylvania. With me here is also Melissa Vanek, who's our Chief Deputy, Chair General, for our financial enforcement.

And we'll be getting our pro hoc papers underway. Okay, thank you. Welcome. Good afternoon, Your Honor. Stuart Brown, DLA Piper, on behalf of Med Impact Healthcare. With me today is my partner, Richard Chesley. We filed ProHop Fee-A papers for him. And I think he was on screen at the beginning of the hearing. Thank you, Your Honor. He's just popped up. Thank you.

Afternoon, Mr. Chesney. Good afternoon, Your Honor. Jeff Sponder and Lauren Bilski from the Office of United States Trustee. Folks. All right. That covers us for those in court. Anyone appearing remotely want to put their appearance on the record. Mr. Moulton.

Good to see you, Your Honor. How are you? Fine, thank you. Can you hear me, Judge? I can hear you. I think we lost video. There you are. Okay, good.

Judge, just David Moulton of Brown-Roneck, I'm here for co-lead Council for the Plaintiff's Executive Committee, appointed by Judge Polster in the Northern District of Ohio for the National Prescription Opioid Litigation. That's MDL-2804. I'm here on behalf of lead counsel and appointed liaison counsel. Joe Rice of Motley Rice, Jane Conroy of Simmons-Hanley, Paul Farrell, of Farrell. and Fuller and Peter Weinberger of Spangenberg, Shibley, and Lieber. A judge as a New Jersey attorney, I don't think I need to file a pro hoc, but if necessary, we'll get one on. Thank you. Not required. Thank you. Mr. Lahane again.

Good noon, Your Honor. Good to see you again. Robert Lehang, Kelly, Dry, and Warren on behalf of a number of landlords, including Regency Centers, Benderson Development Company, Lerner Properties, and Triple and read. All right. Thank you. Thank you very much, Your Honor. You're welcome. I don't see any.

For those who are appearing remotely, if they wish to be heard, please use the raise hand function in the future. Mr. Zeltner? Yes, good afternoon, Your Honor. It's Oliver Zeltner, Jones Day, on behalf of American Greetings Corporation and Papyrus Recycled Greetings Incorporated. All right. Thank you.

Good afternoon. Thank you, Your Honor. I think that covers us. I just like we did that every time. All right. It's the Susberg. Good afternoon, Your Honor. Good afternoon.

Joshua Susberg, Kirkland Ellis, on behalf of Rite Aid. It's a pleasure of you back in Trenton. Have a present. You don't hear that often, but go ahead. Well, it's true. And we had a nice lunch today as well. I should indicate. We have a presentation that I'd like to walk your honor through with significant background

and how we got to where we are and obviously what's to come. I want to start with an aesthetically pleasing right-ed, and that's the reason it's on there. Mr. Bank, who put together the presentation, had no reason other than it was aesthetically pleasing to post it, but it's in Bridgeton, New Jersey, 78 miles from the courthouse. And before I start, I did want to thank Your Honor and the United States Trustee for working with us over the course of, obviously, the last 24 hours. But for the United States trustee, the last several days. And obviously, it was a weekend. There was a lot of paper that was filed.

And we really appreciate the efforts of everybody to help us get an engineered soft landing here. So thank you, Your Honor. Thank you to the trustee. I share my thought. We appreciate having what we view with the best of the offices of the U.S. here in Jersey. Excellent. Your Honor, this is the right aid in Beechwood, Ohio at 28600 Shagrin Boulevard. Beachwood is a town of about 14,000 people, and that happened to be one mile from where I grew up. So right aid was near and dear to my heart. I conferred with

my mother, and she confirmed from me that we bought band-aids, cough drops, halls or lootants. I like both of them. We got my father's asthma medication. We got greeting cards. Everything we needed was at Rite Aid. And if I was behaved, she reminded me that I'd always choose Hubba Bubba or Fruit Stripe Gum. And for all the associates at Kirkland, they have no idea what that is. But be that as it may. This was our small town destination, and it was utilized by everybody in the town. And I think as you hear the story of right aid, it's similar across the country. In 17 states and 2,100 plus pharmacies, people have come to rely on right aid for their hometown specific non-emergency medical needs.

Trenton, Your Honor, is no exception. As you'll see in a moment, this is the Trenton Rite Aid, as well as the courthouse showing a four and a half mile delta between the two. We're on a little bit of a delay here. Your Honor, Trenton has become a pharmacy destination for right aid customers. And I think it's important to note, you know, in addition to the one in Beachwood, Ohio, in addition to the Trenton location, the 2100 right aid pharmacies across the country have performed really important services. 200 million prescriptions are filled per year. In 22 alone, 14.3 million COVID vaccines were administered, 3.6 million COVID tests and 2.6 million flu vaccines. And Mr. Schwartz, I know, had mentioned he wasn't feeling well.

Four and a half miles, Mr. Schwartz. Hand sanitizer, masks, whatever you need. We're going to cover a few topics today. I want to talk about the numbers generally for right aid. I want to make some introductions. I want to talk about the history of the company, a business overview, how we got here, the path forward, and then we'll get into the agenda. So, right aid by the numbers. The birthplace of college football, Your Honor, is right here in the state of New Jersey at Rutgers, the Scarlet Knights.

Rutgers has a capacity of 52,454. And I will note they had a game on Saturday, big comeback win gets Michigan State. Now, there were only 11,000 in attendance because it was freezing cold and raining. But perspective is everything, Your Honor, because Rite Aid has more than 45,000 employees. So enough employees that can fill Rutgers Stadium and have more of a crowd than they had on Saturday. And from our perspective, there is absolutely nothing more important. And I know when I introduce the management team, this will be their laser focus throughout the duration of these cases. We are going to do everything in our power to preserve as many jobs as possible.

As far as our customers and how we serve them, interesting statistic that's the same. not popping up. The population of Bergen County, just under 1 million people, 955,000. Rided customer service daily, about 1 million. There are 6,100 pharmacists across those 2,100 pharmacies in 17 different states providing critical care to patients all over the country. We are going to continue doing business as usual, and I want everybody that's out there, the consumers and the people that rely on right aid to understand that we are open for business. We obviously have a few matters we need to address in that regard today, but it will be business as usual. Interestingly enough, Your Honor, the average median age in the United States, New Jersey, is 40 years old, 40.3.

The average age of a right aid customer is 55 and older. and I read an interesting quote from the CEO of Amerisource who said the longer people live, the more drugs they take, and the more drugs they take, the longer they live. And so when you think about this in the context of this company, the United States population is about $340 million this year. And it's expected to grow about half a percent over the course of the next year. And over the next 30 years, that's supposed to tread down. But when you look at the population of 55 years and over, and then you look at the population of 55 to 65, the trends are so significantly different. And statistics show that these populations, 55, will grow 60%, and 55 to 65 will grow 70%. There is an acute need for the pharmacy chain and for right aid.

And I think that with the population growth in these elderly categories, it simply amplifies the need for the care that's provided at, each and every one of these redates. Just a few numbers to demonstrate the American icon that we're dealing with here that's been in business for 60 years. 17 billion of annual sales brand recognition across the United States, notwithstanding, it only operates in 17 states, a $4.3 billion gross profit, and then sales per store, and we'll get into the retail business, a front-end goods of 2.1 and 5.4 million in drug sales. Now to some key introductions, Your Honor.

We have a skilled and talented management team at Rite Aid, and I've been working with the company since April of 2023, and I've been impressed from top to bottom with the commitment, desire, and drive of the team. It's 125 years of shared combined experience that exist amongst this team, and I do want to point out a few people that are in the courtroom today. Right behind me is Mr. Jeffrey Stein. As Your Honor probably saw, Mr. Stein's our first aid declarant. He was appointed as the CEO and the CRO of Rite Aid in connection with our filing. Mr. Stein is a 30-year restructuring professional and is served in similar capacities in whiting petroleum,

Philadelphia Energy Services, and Westmoreland Coal. He is as committed as anyone I've ever seen to the task at hand, and I couldn't be more proud to be in the foxhole than with Mr. Stein. Mr. Matt Schroeder is in the courtroom next to Mr. Stein. Mr. Schroeder is our chief financial officer. Mr. Schroeder has been at Rite Aid for 24 years in various financial capacities. And I will tell you, I'm not sure I've seen a human work as hard as Mr. Schroeder over the course of the last several months, and it's a pleasure to be working with him.

And finally, I want to point out Mr. Sabatino. He is our chief legal counsel. He has more legal counsel experience than I think anyone in the United States of America. He has served as general counsel or CLO at nine different companies, including United Airlines, Hertz, Walgreens, and many more. And finally, I want to point out Mr. Liebman. That's his prom photo in the bottom. Where's Mr. Leibman? There's Mr. Leibman.

Mr. Leibman is from Alvarez and Marcel. He was appointed our chief transformation officer. Very interesting term, as he's pointed out to me. He isn't sure what it means. But Mr. Leibman and his team, who will introduce, have been intimately involved with the company in developing the Rite 8-2.0 business plan, the least optimization designs, and everything else in between.

As far as the company's professionals are concerned, you heard from Cole Schatz and you're familiar Kirkland and Ellis you'll meet some of my colleagues today we are joined by Guggenheim our proposed investment banker I know Mr. Hayes is in the courtroom Mr. Schneidman's in the courtroom and Casey Cohn is in the courtroom as well and from A&M Mr. Liebman Brendan Joyce and Paul Kinnelly I did want to note your honor that governance is incredibly important to us and in addition to appointing Mr. as the CEO and CRO, we have taken certain actions to add disinterested independent directors at three different boxes within the corporate structure. The first in the middle, obviously,

is Wright Aid Corporation. That's the parent company, the publicly traded entity. Mr. Keglevick and Ms. Tepner were added to the board formally. All of these folks have been serving as consultants over the last several months pending their appointment as board members. Mr. Seleig and Mr. Meltzer, who are represented by Katten, are at Hunter Lane LLC. That is the parent company of Elixir, our benefit management corporation that we're seeking to sell. And I know, folks, Mr. Chesley's on the line with respect to that sale. That's not up for today, Your Honor, but we did enter a stalking horse. And then finally, thrifty pay less, Mr. Pantagos, Ms. Broderick, represented by the Millbank firm.

That is the entity, that's the parent company for an entity called, name right LLC. And that owns all the IP, including the right aid brand. And there were historic transactions relating to royalties that we believe create at least a review of various intercompany transactions. And we wanted to ensure that disinterested parties were on both sides of the equation represented by Conflicts Council to deal with those issues. And I should have mentioned Cobain and Kim representing Mr. Teglivik and Ms. Tephner. As I think your honor heard, Bank of America is our proposed dip lender on our $3.45 billion facility, not all of which is new.

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Let us make your bad day better. Find an agent at CINFIN.com. Money, which I'll cover in due course. They're represented by Choate, Greenberg-Trowig, and BRG. We have worked incredibly hard with B-A and their professionals. We very much appreciate their collegiality over the last several days as we finalized is very important financing. And then we have...

have our secured bondholder group. Our secured bondholder group includes J.P. Morgan, Brigade, and 6th Street. And as you heard, they're represented by Paul Weiss, Fox Rothschild, Evercore FTI Consulting. My good friend, Mr. Rosenberg, is in the courtroom today. Mr. Rosenberg is going to be the champion, together with us, of 45,000 plus jobs. And we are going to focus on driving towards a restructuring as quickly as humanly possible, because we will talk. your honor, about the administrative costs of this case and bankruptcy generally. Administrative costs could kill this company. And so we will move with all deliberate speed. Mr. Sussberg, let me just stop you here for a moment. Since I see it up on the screen,

I want, and we, backwards? Backwards. Just leave it up. Doesn't matter. We've all learned how important disclosure is in our courts. And I wanted to make it make sure everybody's aware and disclose that for Evercore, who I believe is providing advisory, investment advisory services to certain lenders. My son, Jonathan Kaplan, is a managing director and senior counsel for Evercore. He does in-house legal compliance, corporate. He does not engage and never has in any customer transactions, any transactional work. I don't even think he likes bankruptcy.

But I certainly don't see it as a conflict, but I just want it out there just in case anybody has any concerns. Thank you. Are you looking for a reaction, Your Honor? No. I don't have one. So I think it's important, Your Honor, to understand the history of it. this company. And it's interesting, and I'm sure you saw in Mr. Stein's declaration, company was started by a gentleman named Alex Grass, who happened to be a lawyer. I mean,

think of all things, a lawyer creating a retailer with 2100 locations. We're all looking for a way out of it. And this all happened in Scranton, Pennsylvania, when Mr. Grass created what was then called Thrift D Discount Center. He wanted a discount retail drugstore chain for the community. And it was an instant hit. And in 1963, he opened five more stores, and he moved himself into New York. And then in 1966, he opened 36 more stores in five different states. By the 1970s, you'll see that the company changed its name to write it. And then went on a shopping spree.

They acquired 99 reeds out of Maryland. They acquired six U-save stores in North Carolina and Tennessee. and nine shop rights in the Hudson Valley. The public listing and Fortune 500 soon there followed with a billion dollars in sales. And interestingly, by 1981, they were the third largest pharmacy in the country. By 1995, there were 3,000 retail locations. They were number one in size, number two in sales. And in 1996, as you saw before, they became.

four thousand retail stores with the acquisition of Thrifty, which included a thousand retail locations on the West Coast. Now, the shopping sprees continued. In 2007, the company acquired several retail locations from Eckerd. Just a fun fact, I thought this was interesting. Eckerd was actually acquired by J.C. Penny in 1996, and then they forced a sell-off of those locations to both Walgreens and to CVS. In 2014, Ritead ventured with Health Dialogue. This is an online health management services business that also provides phone calls and counseling for its patients. Elixir, which we're going to spend a bunch of time on, our pharmacy benefit manager corporation. And then Bartels drugs in 2020, which allowed us to open 67 stores under the Bartels flag in Washington, D.C.

Now, as I think you also saw, Your Honor, in Mr. Stein's declaration, there were a couple of instances where the company actually was seeking to be acquired. There was a transaction valued at $17.2 billion in 2015 with Walgreens that did not receive governmental approval. And as a result, only a portion of the locations of right aid were sold to Walgreens. And then I think you also saw on Mr. Stein's declaration that at one point, Wright-In and Albertsons had agreed to a merger in 2018. but that merger had been terminated. And I think that provides a little bit of foundation for when we get to the balance sheet and the reasons why we're here.

As far as the business overview is concerned, there are two operating segments. There's Rite Aid, which is retail, and there's Elyxer, which is the pharmacy benefit management corporation. And that's the entity that we're seeking to sell to Med Impact. As far as Rite Aid is concerned, and I think I've mentioned this,

operates in 17 different states with 2,100 plus locations. There are seven distribution centers magnified by the stars, and they, in addition to prescription drugs, sell health and beauty products, food, candy, like in my case back in 1987, as well as consumer products, and everything that you need on a non-emergency basis. Just a few numbers about the business, and I think it's important to highlight this,

because it shows the trajectory. You know, private label, store-branded products have seen an increase year over year. The customer programs that have been implemented, and we'll talk about in the context of the customer program motion, cannot be understated. It creates a loyal base of customers. And that starts with the RX Evolution product that the company created to be the last mile in health care. And that's like customers in Beechwood that really need their mile of support from their house to be able to get all their pharmacy needs. And then obviously, and I think this is important, consumer preferences are changing.

Everybody wants things faster and quicker. And Rite Aid has been at the forefront of developing policies and procedures to be able to deliver on those very pieces. As for Elyxer, Your Honor, and I will tell you, I've had major tutorials over the last several weeks to fully understand how these businesses operate. So I'm going to do the best I absolutely can. there's really four pieces to this business. And this business, if you take a step back, is a go-between an intermediary of sorts, between drug manufacturers on the one hand, and then retail pharmacies, healthcare sponsors, and its members, on the other hand.

And what it does is it combines an ability to really have purchasing power and improve access and quality of prescription care. And also, at the same time, and importantly for the consumer, it minimizes costs. So there's four pieces to the business. And Mr. Bank did a great job of having this all come together. Plan administration. These are contracts with health care plan providers, like insurance companies and unions and corporations. They determine Elyxer, together with those providers, the list of drugs that are provided for to those individuals under the plan.

And in the context of what we do at Elyxer, we manage over $1.5 million, insured parties through these various arrangements with the unions and the health plans. We then deal with rebate administration, and this is the primary source of cash inflows and outflows for the elixir business. These are rebates negotiated with the drug manufacturers who give the rebate to elixir, and then elixir gives the rebate back to the provider. And what elixir really does is it goes out to the manufacturers, you know, a marisource, whoever it may be, we won't use McKesson for the market. moment, but we'll come to that later. And they go negotiate the ultimate rebate, and it gets passed on.

And what it does is it drives down the costs for the consumers through favorable rebate pricing. There's mail order specialty, and this goes back to my comment about consumer preferences and demands. This is direct to consumer. It's a very sophisticated network and includes specialty services. And this is something that's growing and something that's important. And then finally, Medicare Part D, which Your Honor, I'm sure is aware, a federal program providing outpatient drug benefits for Medicare patients. Elixir has an entity that's incorporated in Ohio, and it is fully discharged of its obligations as far as the PDP is concerned. It's insured and able to provide these services. And when you combine all that together, Your Honor, obviously you get the

elixir business, but you also get increased access and improved affordability. This slide gives me an absolute headache. I had Mr. Sosnik on the phone last night trying to explain it to me. It made absolutely no sense. So I'm going to use an example. You assume that Mr. Sosnick is a member of an insurance plan that's offered by his union. And for purposes of this example, let's assume it's a plumber's union. And I say that because the union contracts with elixir to provide pharmacy benefit management services.

And Elyxer then goes out in contracts with, let's use as an example, Pfizer, a drug manufacturer. And they ensure that certain drugs that are necessary for the union may be back medication, asthma medication, whatever it may be, are on a list of qualified meds that are included in the plan. So the contracts are set. Mr. Sosnik decides he has an issue. He goes to his pharmacy. We'll say CVS, even though he should go to Rite Aid. And he fulfills his prescription for a certain drug.

Elixir is negotiated with the CVS to provide lower prices on drug costs for Mr. Sosnik and other planned participants in return for being included on an approved list of pharmacies that will do business with customers going forward. And so Mr. Sosnik pays his co-pay, $20 in this example, and elixir pays $80 to CVS for the remaining cost of the $100 drug. So what ends up happening is Elyxer bills the union $80 plus a flat fee for services and administration. And once that purchase is complete, Pfizer then sends a $20 rebate to Elyxer related to the sale of the drug to Mr. Sosnik. Elixir then passes on that $20 rebate back to the union. So that is much easier to understand than this dialogue and this description. But I will note, Your Honor, and this will come up in the context of relief we're seeking. today, the debtors owe pharmacies approximately $205 million related to these costs,

and the debtors owe their clients approximately $275 million related to these costs as of the petition date. These are important pieces to keep the business moving forward and obviously important from our stalking horse perspective and our marketing process. In just a few words, because we are marketing this asset, we obviously have a $575 million stocking horse with net impact. But based on everything that I've learned about this business and what we've talked about, there should be robust interest in this business. We have an aging population that continues to grow year over year. The percentage of people that are inflicted with chronic pain continues to increase, and national health expenditures continue to increase.

At the same time, we lost the presentation. Well, Judge, did you cut us off? Our internet's down? That's fine. Just a few other points, Your Honor. This will click so I know which one. There is a shortage of physicians in the United States, and there are growth opportunities,

not only in the pharmacy business, but with the elixir business as well, because, like I said, people want things faster and easier. And so if it's a non-medical emergency, you're going to your local pharmacy. And right aid and the elixir business are incredibly well positioned to capitalize on those opportunities. Your Honor has a copy of the position. I see it right here. Okay.

I want to move to our capital structure. And I don't know if it's quick. Okay. There we go. There we go. This is our capital structure, Your Honor. As you'll see, there's approximately 2.6, $2.3 billion of first lien indebtedness. Ms. Yanamondra will be addressing how we're dealing with the first lien that's Bank of America in the context of the dip.

And we'll also explain to Your Honor what's new money and what isn't as part of the roll-up. And then the secured notes, Mr. Rosenberg and Mr. Hopkins clients, you see the two tranches there, the 2025s, the 2026. Those are secured notes that actually have a first priority interest on equipment, general and tangibles other than intellectual property, fixtures and equipment. And then a second lien on everything that is part of the ABL collateral. And of course you see our unsecured indebtedness. What you don't see on here are the contingent clamps that this company is dealing with and the litigation portfolio that is expansive that I will cover in due course. So a little bit about why we're here, and I think it's a confluence of events that has led to the day that came last night. Unsustainable capital structure, financial and operational headwinds, near-term maturities, retail footprint,

competitive pressures, and vendor reliance. And, Your Honor, I think Mr. Stein's declaration talks about the late 90s where there were some issues with management, there were governmental investigations. the company actually avoided very, very carefully a bankruptcy in the late 90s. But I'm more focused on the acute events over the last several years because I think that's how the story unfolds and that's why we're here. As far as the capital structure is concerned, I think it's sufficient to say it is unsustainable

and the scales have been tilted. 8.9 debt to EBITDA leverage ratio, $200 million of annual interest and $4 billion of funded debt. It has simply become unsustainable. Your Honor, the financial and operational headweds cannot be understated. And you see this slide says it all. Operating costs because of inflation and because of labor costs has gone up. And at the same time, free cash flow has gone down because of declining reimbursement

rates and reduce merchandise and COVID vaccine demand. And it's created a completely unsustainable situation that needs to be right-sized because these numbers just don't make sense. As far as capital structure, we have near-term maturities that are coming due. And we say it's $2 billion because while the notes are due in 2025 and 26, there are springing maturities that bring the entire capital structure heretofore. And as a result, it became necessary to deal with this now while we have the opportunity and before it's too late.

And I think too many retail companies wait until the last moment. hopefully this will be a tale of a company doing right by its stakeholders and doing right by its consumers and right by its employees by acting in a proactive manner and not waiting for a maturity well. But Kessing. By now, Your Honor has seen the pleadings. I haven't seen the response, but we'll take a look and do course. Lawyering on the fly is not a problem. This is a 20-year relationship and a supply agreement that has been in effect. And I think this says it all. $9 billion of sales each year to McKesson.

$9 billion. Now, maybe for McKesson, that's not a huge number because they have $280 million of sales a year, but $9 billion is a staggering number. And 30 days ago, Your Honor, at the highest levels of each organization, Mr. Stein and Mr. Schroeder met with their counterparts at McKesson. We signed a confidentiality agreement, and we began a dialogue to ensure that this relationship could continue for another 20 years. And why on earth would McKesson not want that relationship to continue

and continue to clip a coupon of $9 billion or some there amount each and every single season? And really what this dispute turns on and why it got nasty was treatment of a pre-petition claim. And Your Honor knows that the Bankruptcy Code says under 362, when a company files for Chapter 11, all parties are required to continue to perform. if there's relief from the automatic stay. To the extent someone has a claim for goods provided within the 20-day period ahead of the bankruptcy, 503B9 provides them with an administrative claim.

507A talks about the administrative priority, and then 1129A, in the context of confirmation, says, by the way, administrative claims need to get paid in full or otherwise treated in accordance with an agreement with that administrative creditor. Nothing in the bankruptcy code says a 503B9 claim is a vendor claim that must be paid on the first day of a bankruptcy. So as we stand here today, McKesson has a claim over the last 19 days. That's our contract term.

We pay every 19 days. They have a claim of approximately $650 to $700 million, and it'll get quantified. And we can stand here and stipulate, Your Honor, that it is a 503B9 administrative claim. and we know what 507A says, and I know what 1129 says as well. And we were having conversations with McKesson about a go-forward arrangement. We had an understanding in our view, and there wasn't a meeting of the minds, and that can happen. We had an understanding that they understood what the bankruptcy code said, and that they understood that their administrative claim was a claim

and would have to be dealt with in the context of a plan. When they found out that their administrative claim of $700 million was not being, paid today in connection with our critical vendor relief, they sent a notice in the middle of the night terminating the contract, terminating the supply agreement. Of course, trying to do so before potential bankruptcy filing that they only knew about because of confidential negotiations that we have been involved in for 30 days, trying to get to a resolution to save the relationship, but more importantly, save 45,000 jobs and save everybody in the United States and 17 states, and 2,100 retail stores to get their prescriptions on time.

And we have gone back and forth, and there is nothing more important to the company, Your Honor, and I can speak for the management team, than ensuring that there are prescriptions filled in our stores, not just today, tomorrow, Wednesday, and every single day thereafter. And that's what our relief relating to McKesson will deal with today. Mr. McCain is going to take the lead for Kirkland, and it will be the first matter that we address unless Your Honor would like to take it in a different arrangement. Just as far as the drugs are concerned, Your Honor, you'll see on this slide. These are just a few of the branded and generic products that we get from McKesson.

And these things deal with asthma, bronchitis, emphysema, stroke and blood clots, high blood pressure, diabetes, glaucoma, the other one for diabetes, depression and anxiety. We have customers, thousands and thousands and thousands of customers that rely on these medications and rely on having their prescriptions filled on time. And we will not tolerate any interruption to our ability to meet those needs. Your Honor, we have a suboptimal footprint. And I'm going to talk about the work that was done by the management team and Mr. Leibman's team in analyzing the entirety of our 2100 stores. But just to give Your Honor a flavor for how unsustainable current operations are, the company's closed 200 leases in the recent past.

And those 200 leases have resulted in $80 million of dead rent. And so every single year, the company is paying $80 million for space that is vacated and not being utilized and not generating cash. As a result, as we analyze the situation considered out-of-court alternatives, I think Your Honor will appreciate that the tools afforded under the bankruptcy code. Lease rejection, assumption, et cetera, became incredibly important and it will obviously deal. with our dead rent. Then we have the competitive landscape. You've got your national stores like CBS and Walgreens. You've got your Walmarts and your targets. You've got Stratton that I go to in Westchester County, just an independent drugstore. You have supermarkets now like Kroger. And then we have Amazon and Capsule, which are selling online prescriptions. So to say the competitive

dynamic in this industry has changed significantly since back in the 80s and 90s when right aid was the number one chain in the country would be an understate. I do not mean to suggest that efforts have not been channeled to ways in which to avoid this Chapter 11, because that would be inaccurate. This company has been battling for many years, close to four years, with various ways in which they could affect and change liabilities and try to avoid utilizing Chapter 11. There was the notes exchange, there was a redemption, there were cash tender offers. Unfortunately, it just simply hasn't been enough.

There also have been initiatives from the management team on, as I mentioned, closing stores, renegotiating management operations, optimizing pricing, rationalizing front end, everything that you would consider a company to do to try to avoid a Chapter 11, but even more so be positioned for the future. And that's exactly what's been done. I want to talk briefly, Your Honor, about five things. marketing elixir, preparing to relaunch retail sale efforts, the footprint rationalization, governance refresh, which I hit on, I'll only briefly conclude on that, and then evaluation of other alternatives. So we conducted a very specific bottoms up analysis of our entire footprint. And I think Your Honor is aware when you're a retail company of this size, you know,

EBITDA can be depressed because of lower risk. revenue per store. And I think what our analysis has demonstrated, and I believe Mr. Rosenberg's clients agree, we will see significant improvement in EBITDAQ compared to the last 12 mounts by closing underperforming locations. So with the leveraging, with litigation overhang being left behind, and with an optimization of a footprint, we have a business plan, which we call Rite A2.0, that can be turbocharge. And what we've done is we've looked at. We've looked at. We've looked at everything for each and every single lease, financial performance, rent relative to market, supply chain considerations, and other operational considerations. And we have identified

certain locations that are underperforming and don't seem to have a path to profitability. We've identified locations that are somewhere in the middle. We tend to make it a red light, yellow light, green light analysis. And we've identified those locations that are absolutely performing. And we are going to use this Chapter 11 process to rationalize our footprint, get out of underperforming leases, and give this company a capital structure and a footprint that can succeed. As far as Elyxer is concerned, I won't belabor this, but we have been in touch with 13 parties, nine signed confidentiality agreements, Met Impact signed its deal for $575 million. And we are moving forward. We will contact all parties, including 13.

that we originally reached out to and anyone else. Elixir is open for business and available for sale. The governance refresh. I don't need to belabor, but as Your Honor heard, all of these individuals, the seven identified, the six directors, Mr. Stein, a CEO and CRO, have been involved at the company since over the summer, but were formerly appointed to their roles in connection with the filing.

They are all focused and very much involved in making key decisions and ensuring that the governance process is pristine. pre-petition stakeholder engagement, Your Honor. I'm going to get to this in the context of the RSA because too often times people stand up and parade the fact that they've entered into an RSA. But an RSA is only as good as the number of participants that are signed on. And I've learned that the hard way. And I've had that thrown in my face in the context of other Chapter 11 cases.

And right now we have an RSA with our secured note holders. And granted, they are an incredibly significant and important consistent. constituency, and they're taking 100% of the equity subject to dilution for other stakeholders. But we have been involved in constant contact with obviously Bank of America, our secured and elders, and then litigation claimants. And the litigation claimants, you know, we have a huge, as I mentioned, litigation portfolio. I will speak about the opioid claims and Mr. Moulton's on the phone, and we've been in dialogue with Mr. Moulton and other colleagues at Kramer Levin and Hulahan Loki, as well as the Pennsylvania Attorney General.

But we also have contract disputes, governmental investigations, we have securities disputes and securities claims, we have pay-or disputes, including one that I'll mention. And all of these things take time and attention away from the task at hand. We want to bring everyone to the table, as I will explain. We want a resolution. We want fair and equitable treatment, just like everybody does. And we want to make sure that everyone has their moment in time, and we move quickly to reach resolution. So why now, Your Honor? I think it's pretty simple. There are no out-of-court paths to fully

rationize our storefront, and the dead rent is simply too much. The rumors of distress that have been in the newspapers for months have really created pressures on our supply chain. Needless to say, we need access to liquidity to ensure that we are open for business and available for customers. Near-term maturities are unlikely to resolve. We had a judgment with one of our payers, Humana. That judgment actually was for $122 million. We had entered into a tolling arrangement with Humana, which we appreciated, to allow us the time to be organized when we filed for Chapter 11. But that judgment came due today. That related to usual and customary pricing disputes relating to the sale of our prescriptions. And that's part of the reason that was driving the

October 15th deadline. And then obviously prior out-of-court retail sale efforts have been I'm successful. I talked about Walgreens, and I talked about Albertsons. So the path forward, Your Honor, and I think it's pretty simple. We intend to implement Rite Aid 2.0, but we also intend to run a sale process to ensure that we maximize value. And I'll get to in a moment what that outline looks like as far as timing and gates. We are going to reduce leverage drastically, and we're going to give this company an opportunity to effectively be debt-free other than a revolver borrowing-based facility. We're going to preserve 40 plus thousand jobs.

And like I said, there isn't a day that goes by that I don't speak to Mr. Stein, Mr. Schroeder, Mr. Sabatino, where this comes up. This is our focus. And as I mentioned, we are going to treat claims equitably. As far as footprint rationalization is concerned, Your Honor, there's two ways in which we will rationalize this footprint. One is to sell our scripts to license third parties. And the other, which obviously would be preferred,

is to what's called pour our scripts. That's a fancy way of saying if the Beachwood, Ohio location was closed, we're going to take my prescription that's at the Beachwood location and move it to Shaker Heights, which is two miles away. And so while it's not as close to my house, it's still within distance, and I still remain a right-ed customer. Now, we may lose some customers in between. That's going to be the process that we run over the course of the next several months. As far as the sale process is concerned, there's two sale processes. One is for elixir. One is for the rest of the retail operation.

And we're soliciting all manners of bids. It's not just for the entirety of the business. It can be for pieces of the business. And the credit bid that we have in hand that we're going to seek to effectuate through a plan is for that retail business, subject to an agreement on the ultimate store footprint. But we're intending to run these sale processes immediately, and we're seeking to affect the elixir sale by December 7th, where we set a sale hearing, and December 19th is a scheduled sale hearing that we have for the rest of the retail assets.

Now, obviously, Your Honor, we did not want to assume your schedule. We're flexible with dates, and we're at the mercy of the court as it relates to timing. But this was our desired, at least outline of how to move things forward. As far as the dip is concerned, I will let Ms. Yenamondra walk you through the dip financing and due course. As I mentioned, it's $3.45 billion of a senior secured facility. It replaces and rolls up the prior facility and then provides the company with $200 million of fresh capital, which means that the company will have access to approximately $500 million of cash. We have $134 million on hand.

we would have $200 million of a fresh loan, and then about $200 plus million under the revolver, which will be reduced from the blocker that's in place now by the tune of $60 or $70 million, resulting in the $500 total. The restructuring framework, and I think framework is an important word, because I don't want the court to be misled about what we have and what we don't, and who's on board and who is not. But we have reached an agreement in principle with Mr. Rosenberg and his clients. It will be embodied in an RSA. We already have a term sheet. We're waiting on some approvals from certain of his clients that were necessary to get over the course of the next 24 hours.

And we think it's going to facilitate consensus and an efficient path forward. And importantly, I think what it's also going to do, and these are just the three checks that relate to what we're doing. I think what it's also going to do, Your Honor, is bring people to the table. because I know that there's nothing that gives people more ability to be in a conversation than the filing of a Chapter 11 plan. And we intend to file a Chapter 11 plan. And we're going to file a Chapter 11 plan in moments. And it's a Chapter 11 plan that we are going to invite our constituents to come to the table and negotiate. As I mentioned, the administrative claims could potentially kill this.

This is not endo-pharmaceuticals. This is not Purdue Pharma. This is a retail company. And we acknowledge that there are potential liabilities for various claims. But if people want appropriate treatment, if people want a recovery, it is going to be incumbent upon all of our constituents to come to the table immediately. That goes for litigation claims. It goes for governmental entities.

It goes for unsecured claims. It goes for our secured bondholders. Everyone needs to come to the table quickly. And I think what we've established as far as a framework, which admittedly only has the bonds on sides, is a framework to bring everyone else along. And people will understand that the continued shot clock that may expire will ultimately defeat the recover if we don't move quickly. Your Honor, that is all I have, unless you have questions. We have an agenda that is significantly detailed. it was our intention to go to McKesson first, but it's your honor's preference.

I think I'd prefer if we went through the first day matters, and then I could afford possibly a break to my staff, and then maybe I would sit with counsel in chambers on the McKesson matter first before having, before we hear argument. That sounds like a perfect plan to me, Your Honor. All right, thank you. Ms. Yadamondra. Yes.

Mr. Rosenberg, you know, please? Yes, Mr. Rosenberg. Can you get to present first? Good afternoon, Your Honor. Andrew Rosenberg, Paul Weiss Rifkin, Wharton, and Garrison, on behalf of the ad hoc secured note holder group. Yes. I will be brief, but I thought just a few points since Mr. Sussberg,

as he as often wanted to do in a positive way, you know, speaks for me as well as my thoughts. So I figured I would speak for myself for a couple of minutes. Absolutely. It would be helpful. And Mr. Sussberg, if direct, we do have an agreement in principle in a term sheet that I believe was attached to Mr. Stein's declaration. We do not yet have an RSA. The hope and expectation is in that 24 hours, I think, may be a bit brisk.

But in the days to come that we will be able to negotiate the form of a RSA as well as put the, what I'll call almost a business man's term sheet to flush it out into a long-form term sheet. So that's sort of on process. But I think a couple of points that, or at least one, that Mr. Susberg also stressed also, was this business is, I will describe as, you know, and I think a lot of it came out in the presentation, is, you know, exists on a very economically thin margin is probably the best way to put it. And to the extent that there's going to be a credit bid, which our hope is that there will be. And to go forward, though, two things are going to have to happen. One, as Mr. Sussberg mentioned, the timeline is critical.

And it's not only the loss of, you know, potential customers, employees, etc. It's just having done this for far too long and your son is right, I hate bankruptcy too. The job that takes the exact same job that is done in four months rather than two months cost twice as long. And to the extent that fees begin to eat up this case, there's no way that there could be a viable credit bid. Similarly, along the same vein, to the extent that obviously the company will pay for any expenses it has going forward. That's the price of poker to do business in Chapter 11. But at the same time, to the extent that there becomes a grade, and obviously Your Honor has already mentioned, McKesson, of unsecured creditors, albeit even with administrative claims on Moss trying to leapfrog our priority in the collateral,

and we believe that almost everything of value we have a first or second lean on, again, this is too economically thin. If money starts to just go out to the door, unfortunately, this is not going to work. So we have an agreement in principle. We're hopeful and want to get to an RSA. We are hopeful and look forward to getting to a credit bid, but all these numbers have to work. And the only way they're going to work is with sticking to the timeline, everyone, including our firm, having fee control and at the same time being reasonable as to

as to the march of unsecured claims that will seek to get paid at the beginning of the case over our priority. All those things have to come together for this thing to succeed as we hope that it will. Seconds and just a much more ministerial point, we reached this deal in principle late last night, and Your Honor is quite familiar with the deluge of paper that you got. Normally, we're a little bit more ahead of the game, but, you know, since we didn't reach terms until late, we got all the papers late as they continue to come in and blow up my iPhone and iPad. And while directionally, we are definitely in support of all the relief that the debtors are seeking, a lot of the, especially things like bidding procedures and other stuff, the words and the orders matter

a lot to us and, you know, we have some work to do to make sure that the, those words reflect the deals that we need to go forward. So much as exciting would be for the court, for me to pop up each time and reserve my rights. I'm just going to do it. Take it as a blanket reservation. Yes, we're going to do the blanket reservation once and, you know, our hope and expectation again is that we can work out all the terms of these orders so that they've worked for us to continue our, you know, cooperation going forward as we would like to do. With that, Thank you, Your Honor. Thank you, Ms. Lerzmer.

Appreciate it. Good afternoon. Good afternoon, Your Honor. A partner, Anna Manger from Kirkland-Ellis, proposed counsel to the debtors. Your Honor, this is my first time in front of you, but I am New Jersey born and bred, so happy to be here.

My parents are still in my childhood house, and there is a good chance they come to court one day to try and figure out what it is I do. Your Honor, we'll move to the dip facility next, if that's all right. We filed the dip at docket number 38, It is supported by two declarations. The first is from Mr. Matthew Scheideman, a managing director at Guggenheim, filed at docket number 41.

And the second is from Mr. Mark Liebman, the chief transformation officer filed at docket number 40. They're both in the courtroom today, although you may not recognize Mr. Liebman because he does not look like his prom picture anymore. Kia, this is number 53 on today's calendar, whoever in-house calendar. I'll just time in, but go ahead. Your Honor, Mr. Sussberg touched on this, but let me go into a little bit greater detail on the dip facilities. So there are three facilities. There's a $2.85 billion dip ABL facility, a $400 million dollar philo facility, and a $200 million new money facility. The dip ABL facility contemplates a creeping role of the pre-petition ABL facility.

So on a dollar-for-dollar basis, as cash receipts are generated, they'll be used to pay down the pre-petition ABL. And if by the time we're in front of Your Honor at the final dip hearing, if the pre-petition ABL hasn't been fully refied out, we'd be asking that relief on a final order basis. The Philo facility is a $400 million pre-petition facility that we're seeking to roll up into a $400 million dollar dip file a facility. And the $200 million new money facility is entirely new money. It's a term loan facility that does not include any role of components. And so the three facilities very much work together, and the results of a fairly carefully

packaged deal struck after the marketing process that we described in our motion and Mr. Scheidman's declaration. The first is the components that are rolled versus new money. We thought having a creeping roll versus a full roll on the first day was appropriate. We thought vis-a-vis the filo, although that is a full role on the first day. We thought that was appropriate for a number of reasons. One, that role is part and parcel of the overall facility. Importantly, the pre-petition ABL and pre-petition filo share a collateral package.

and share of liens in that collateral package. And so when we rolled the pre-petition filo into the dip filo, it rolls, for lack of a better term, that same existing construct on priorities into the dip filo, which is a long-winded way of saying that the filo is currently sandwiched between the dip ABL and the dip new money, which is exactly where it would have been, all of the things being equal.

And third, Your Honor, the new money facility, again is entirely new money. Your Honor, the lien package here is important as well for a variety of reasons. The first is we've reflected, again, the intricate collateral sharing and lien sharing between the pre-petition ABL and the pre-petition filo, as well as with respect to the existing second lien notes. There is an intercreditor in place, so the ABL and the Philo do not prime the second lien no, it's vis-a-vis there, no, it's priority collateral, which was an important component of this.

But perhaps most importantly, and relatively rare, the DIP ABL and the DIP Philo do not have first-priority liens on the unencumbered assets. They only have adequate protection liens, and it is our sincere hope that those liens never get triggered vis-à-vis the unencumbered. As Your Honor, won't be surprised to hear the new money does have a first-priety lien on the unencumbered. simply given that it's freshman ants and some coming into the system. And third, Your Honor, there is a reasonable and negotiated fee package that supports all of this,

which is detailed in Mr. Scheidman's declaration. So, Your Honor, overall, the package means that we have improved advance rates on the ZIP ABL facility versus the pre-petition ABL facility. We have what we believe is a limited and targeted role between the creeping, role and the fact that the filo role simply just the filo remains sandwiched where sandwiched now where it was before and importantly we have limited and targeted liens on the unencumbered assets and that last piece in particular dovetails nicely with the plan that we filed so I will confirm for mr. Sussberg that the

Kirkland machine stayed up and the plan was filed but I'll come back to that a minute your honor unequivocally, this dip package with just these terms has been exhaustively negotiated with B of A. But in parallel with the B of A negotiations, as Mr. Sussberg alluded to, we had been in ongoing discussions with Mr. Rosenberg's group. And so as both discussion paths started to dovetail, we eventually brought the two sides together. And an important part, and really in some ways the heart of the term sheet that will be reflected. in the RSA that I'm confident we'll negotiate within the next couple days, is the adequate protection package that's in the debt. So the adequate protection package for the second

liens has three major components. The first is it provides the second liens with relief from intercreditor limitations that would have otherwise in some ways handcuffed their ability to exercise cash collateral termination rights. The second is is what's referred to in the papers as the paydown schedule. And that paydown schedule contemplates that as the PBM sale process plays out, and as we monetize a major receivable we have called the CMS receivable, all of those processes will play out over the course of this case. And when they generate proceeds, those proceeds will be applied in accordance with this paydown schedule.

But importantly, and this third point is, critically important. The pay downs, the amounts go on behalf of the second liens, go into an escrow, an interest-bearing escrow, and they sit in that escrow until there is either, till we've reached the effective date of the plan that we filed, or we consummate a sale that either pays off the dip facilities or contemplates an exit facility that the dip lenders consent to. And if the RSA that I'm, again, confident will negotiate, terminates or is breached, then those same proceeds will flow just through the standard waterfall. They won't be subject to the paydown schedule anymore.

So, Your Honor, all of that, I think, is important to sort of contextualize within the framework of why we structured it this way. And we did it for a couple of reasons. One, again, this is all adequate protection. So to the extent we can achieve the goals that Mr. Sussberg accomplished and we can do it efficiently, and we can do it with as much consensus as possible. and all those parties he identified come to the table as soon as possible. These claims may never be triggered, and if we need to have a fight at confirmation about diminution and the value of collateral, we'll have that fight, but it's our sincere hope that we don't have to.

Second, in the plan that we filed, and as was reflected in this term sheet, we did slot in a proposed recovery for general unsecured creditors right out of the gate. And I will be the first one to admit it contemplates an equity-linked securities, and it is a restructuring lawyer, playing securities lawyer. So there is no doubt a ton of wood to chop on that recovery. And I'm sure, you know, we will, we will do our jobs and we will talk to folks and try to reach as much consensus. But effectively, what that recovery concept contemplates is that if after the dip term loan is paid in full, since they have the first priority lien on the unencumbered, and if there are any adequate protection claims, and we will have a debate

if we need to about whether they are down the line. And those are paid in full, and there remains unencumbered value left. There's a sharing mechanism to provide that value to general unsecured creditors. And we thought it was important to acknowledge there is unencumbered value here, but it's not available for everyone.

It has to flow through the natural course of the waterfall, and that's why we structured it the way we did. Additionally, this adequate protection package only kicks in when the R-South assigned, which I'm confident it will be. And so, Your Honor, against the backdrop of that package, what we got from the second liens to reflect on what Mr. Rosenberg said is we got support for a process. I will be the first one to admit there's a ton of details to work out.

I'm sure Mr. Silva and Mr. Rosenberg are going to lock my number based on the number of calls we've had to have over the last three or four days. But that being said, there is a path here to exit, and the heart of that path is this adequate protection package. And as Mr. Sester said, and I'll reiterate, the term sheet is effectively a backstop for the reorganization we're trying to achieve. The one that, if consummated, will save 45,000 jobs, if not more.

Your Honor, with that, we've been, again, in the spirit of live lawyering, we've been working through comments with the Office of the United States trustee and a group of landlords, and we appreciate their efforts moving on the insane timeline. We've asked them too to comment. I think we are close on all of the comments on resolving them. There may be one outlier, which is the requested five. V-O-6-C waiver, which we're requesting on an interim basis solely as it relates to dip collateral. The waiver as it relates to pre-petition collateral is pointed to the final order, and I'm sure will be something we discussed with the committee.

And so, Your Honor, to the extent that remains a live issue, we would ask that, Your Honor, at the right time, overrule that objection, given the rest of this package has been so carefully calibrated. It is a limited waiver. We're not seeking waiver as it relates to pre-petition collateral. And there's no doubt a committee will be appointed here and we look forward to the negotiations with them. With that, Your Honor, although a little bit atypical, we don't have the order ready just yet. I thought I had a little bit of time with the TRO. So if it's all right with Your Honor, I'm happy to answer any questions. And then at the right time in the agenda, I can hopefully come back up. here with the actual order and to the extent there's any unresolved objections there

I'm happy to take your honor through it I don't anticipate there will be I think at most will just be this 506 waiver issue all right thank you let me hear from Bank of America Council then I'll save my questions and then very quickly your honor mr. McCain reminded me because I have forgotten to do this in literally every case I've done with him to see to declarations move the declarations i was going to get there would you uh would you like to do it now mr mcane has instructed me to offer you this binder i will accept that uh the court is willing to accept the declarations i guess it's of mark leibman uh jeffrey stein and uh batheush

shiterman yep ed doc it's 2040 and 41 i'll accept them in to evidence is there any objection does anybody wish to cross-examine any of those individuals nobody ever takes me up on that all right that's fine may I approach yes please and thankfully nobody takes me up on it all right thank you counsel good afternoon your honor John Vintola of Chodhaw and Stewart on behalf of Bank of America as the DIP ABL agent and as the term loan dip agent thank you very much for the opportunity to address the court today, Your Honor. So I'm here mostly to answer any questions the court might have.

This is a fairly intricate set of dip loan facilities, certainly a large combined facilities. I did want to say a couple of things about where we are in objections right now. I certainly heard what Mr. Rosenberg said with his general reservation as to orders. I did want to note we've gone very extensively through the dip order with the Paul Weiss team, and I believe we have fully resolved all wording issues. So I don't think that general reservation applies to the dip order. And if ball-wise feels differently, they'll certainly hear from you. But I don't think that reservation applies there because we have worked out all points after exhaustive and very good faith negotiations.

So we have gotten comments on the form of order from the United States trustee and from the Landlords Councils. And as Debtors Council said, I think we're going to work through all of those. I certainly think the landlord objections have all been resolved through some language. which used in prior cases, including bed bath. And then on the U.S. trustee objections, again, I think we're either have resolved or will resolve all of those. The point that Debtors Council made on the 506C waiver, Your Honor, just to give a little more detail on that,

our view is that for the dip ABL facility, which is the roll-up facility, the 506C waivers is very typical. We would ask that to be entered at the final hearing. But for the dip term loan, which is a separate facility and brand new money. The new money, correct? Exactly. We don't believe that the 506C waiver or the marshaling provision should be subject to final order, since it's brand new money. Candidly, I'm not sure 506C applies to brand new money in this circumstance.

So we would ask that that not be subject to entry of the final order, Your Honor, against specific to the dip loan term facility. So I'm here for any questions, Your Honor, if you'd like to ask now or if you'd prefer to wait. I've been able to absorb most of it and through the hours in advance of the hearing. I'd rather listen to the concerns of the parties of the U.S. trustee and see where you all come out, rather than rehash issues that have already been worked up and resolved. So at this juncture, I have no further inquiries. Thank you, Your Honor. Thank you. Thank you, Your Honor.

And good afternoon again. Jeff Sponder from the Office of the United States Trustee. I will say that this was the most paper that I've ever experienced. in such a short amount of time despite all the other large cases that we've had. I would say this immediately prior to this hearing we did send our comments. I'm happy to hear that those have been looked at and possibly will be accepted, most, that is. I will say that this dip facility order is over 100 pages. So the 15 or 20 comments that we had, I think, sound like many,

but when in comparison to the 100 and so pages are not many. With respect to the 506C waiver, Your Honor, all we wanted to do was just leave it out of the interim and let a committee, when a committee is involved, take a look at it, just reserve the right for them. We also, I don't know, no one touched on the issue of the roll-down. What we raised, we wanted something in the order that allows it to be unwound if there's an issue with the validity of the liens. And for the committee to do that, I'm not, like I said, we haven't negotiated. We were busy with all the other motions and orders. So with that, the United States trustee reserves his rights with respect to this order. So for you, it's the two issues, the 506C and the unwinding?

No, Your Honor, there's 15 or 20 that I hope, from what I take, I think those can be resolved. You know, there is another issue with paragraph 19 of the order, 19F and 19G, which puts this sale process into effect that just seems to have a crazy timetable where there's two business days after the dip remedies notice period, Your Honor has to enter an order designating a stalking horse bidder and bidding procedures are entered. Then three further business days, an auction happens. I mean, and it just keeps going. So we had a problem.

We have a problem with that. and then the next paragraph 19G seems to imply that the dip agents and then the secured note holders will be able to continue a court process without really having the debtor involved. We didn't understand maybe we're reading it wrong, but we just wanted some clarification on that. But there are other issues, Your Honor, but like I said, I think those are more minimal, more notice-type provisions, as well as making things subject to either the carve-out or subject to the period for the committee or other parties in interest to look into the validity of the liens. All right.

Thank you. Thank you, Your Honor. Good afternoon. Good afternoon. Again, Your Honor, for the record, Leslie Heilman, a ballot bar. And I'm going to start, I guess, on behalf of some of the landlord concerns, Your Honor. We did this morning, very early this morning. very early this morning, raise a number of comments to the DIP order, to the interim DIP order,

which to the extent that, and most of those comments relate to liens on leases, as well as liens on insurance proceeds, access rights, vis-a-vis the landlord premises, and the rendering certain lease provisions unenforceable pursuant with respect to the financing. Your Honor, I do believe we've had some back and forth through phone calls and communications that I believe we are addressing those with certain language changes that we've requested, but we have not seen any revised order as we stand here today, so I can't articulate that we are resolved, but those language changes should be to paragraph 7D3, paragraph 28C,

paragraphs 19C and D, paragraphs 20, well, with 20, it deals with the 50-060, which I'll deal with separately, Your Honor, 7D3F and paragraph 26. So once we see an order, it sounds like we're going to have like some, a break or something that we will address the order comments, and then we can come back to Your Honor if any of those are unresolved. Most of these are actually usual customary protections that we ask for. Many of the language changes were just recently in the Bed Bath of Beyond orders, as well as the David's Bridal Order, Your Honor.

So I do think that we will get there with counsel as long as we can have some time to meet up and address those provisions. With respect to the 506 waiver, Your Honor, generally this is usually reserved to a final. So 506C waivers are subject to final orders. I hear the nuance here that it shouldn't be the new money versus, but it is ultimately a rollout, which converts everything pre-petition to post-petition. I think the 506C waiver should be. subject to a final. That's the usual customary way that we have treated it. And today, Your Honor, the policy behind First Day relief, and I believe this was said today, is to do no harm.

I think if we grant a 506 waiver today without any showing of a sufficiency of the budget to address stub rent, Your Honor, or going forward rent through the five months of this case, I think there could be harm. And there's been many, many cases, many retail cases of late, and in the past where the administrative rent of the landlords that was not paid as of the petition date, but for the use and occupancy for the post-petition period, goes unpaid. And it could be significant here. We have 2,000 locations. Also, we heard today several times that the administrative costs could kill this company.

So to the extent that there is unbudgeted rent for the retail locations, that is an administrative cost that could kill this company. It's significant, and if we don't have any evidence of the sufficiency of the budget today, then a 506C waiver should not be granted. And, Your Honor, again, I think the U.S. Trustee Office also raised it, was there is no committee as we stand here today. The 506C waiver is for the benefit of the creditors, and it should not be waived on the first day. All right, thank you.

Fair enough. Good afternoon, again, Your Honor. Ivan Gold of Alan Mackins for a number of the debtors' landlords. I won't repeat Ms. Heilman's punch list, but I do share her optimism that we can crib and cut and paste and repeat things we've dealt with in the past in a constructive way and look forward to receiving some of that from the debt. We've got parts of it, but we're not all the way there. I would also like to join in her comments regarding what I'll call the Hippocratic Oath of First Day hearings, do no harm. A 506 C waiver, as Ms. Howman mentioned, is for the benefit of all creditors. We did hear the comments.

Not only would it admin costs kill the company, but the company exists on economically thin margins. Until we get our legs under us in this case, Your Honor, we would like to avoid letting the horse out of the barn before we get to a final order and write the script for this case, prematurely. surely that doesn't just apply to administrative ramp, which of course be the concern of my clients, but to the unsecured creditor body as a whole, the 506C and 552 waivers should wait as they do customarily in many cases for the final hearing. One other very minor but important issue, Your Honor, because you do have this week. The dip was batting lead off. in the lineup today. Later on, in the course of the various pleadings that were filed,

there's some first-day rejection motion. And this comes up occasionally, especially when we see the magnitude, the debtor, I believe, is seeking 154 rejections, either effective yesterday, today, or when they turn over possession. The choreography of imposing any interest, the lien-owned leases, it's just proceeds or whatever we finally, language we finally agree on, and the rejected leases. Not surprisingly, the case law is less than clear as to whether or not a proceeds lien, well, obviously there's no proceeds if you reject the lease, but a lien on a leasehold could theoretically be granted before the lease is rejected. And there is authority out there that says that sticks.

and we think that's a bridge too far. It's easily resolved with some language it doesn't apply to the leases that are rejected and docket number whatever, however we approach it. But I just did want to highlight that issue. I've seen some judges just do it simply by entering the rejection order first and get that out of the way so that interest is terminated. That would work except the early reports since last evening or I don't know if we could call it later than last evening, but it was before midnight when the petition started to be filed when the motions. Possession of a lot of these premises has not been returned yet. It's in motion and I know in the next day or so it will occur. We've worked with Kirkland on that in the past.

But because of that lag, I just wanted to highlight that chicken and egg problem for your honor. I think there are several ways we can resolve it, but I wanted to alert you. Have you addressed language? Have you offered language yet? I have not, Your Honor, but as I said, I think simply something that whatever the lien on lease outcome is, an additional sentence that says there shall be no, you know, for the avoidance of doubt, the dip term loan exclusive collateral and related adequate protection liens should not include. you know, leases rejected by this court's order entered whatever date. Something as simple as that, I think could even be simpler, resolves the issue. All right. Thank you.

Thank you. Wait, let me know. Mr. Schwartz? Thank you, Your Honor. Maybe I'll take Mr. Susberg, a plan on his offer and go visit right at four miles away for throat lozages. Your Honor, you heard that my client, the Bank of New York, is subject to. to an intercreditor agreement, which we are. We certainly do not object to the entry of today's order.

However, we specifically reserve all rights. You've heard about the RSA. You've heard about the adequate protection package. You've heard that the adequate protection package is contingent upon my note holders agreement to enter into the RSA. And so as a result, we reserve all rights with respect to, in particular the adequate protection package

and otherwise, but we reserve all rights with respect to all issues. pending the entry of a final order. But again, we don't object to the entry of the interim order here today. All right. Thank you, Mr. Ford. All right. And then we have a couple of folks appearing remotely with raised hands.

Would Your Honor like to start with them? Why don't I start them in case you have to address that? Mr. Zeltner? Good afternoon again, Your Honor. It's Oliver Zeltner with Jones Day. on behalf of American Greetings Corporation and papyrus recycled greetings incorporated. My co-counsel in this case is Paul DiPhilippo of the Walmuth law firm. I understand he had some technical difficulties at the outset of the hearing,

but I believe that he is listening in. We're getting our Pro Hoc papers going as we speak. Just, Your Honor, I wanted to bring to the court's attention one, issue, I'll be very brief, and I think it's something that perhaps can be addressed easily with a bit of clarification from debtors' counsel. American Greetings, supplies, greeting cards, and other goods to right aid stores across the country. American Greetings and certain right aid entities are parties to what's called a scan-based trading agreement, the SBT agreement. And under this type of agreement, American Greetings retains title to the inventory that's on the Rite Aid shelves.

And when at the point of sale, American Greetings has a lien on the proceeds of those assets, and the assets are held in trust under the contract by Rite Aid until they're paid over to American Greetings. In the final dip order, what we're planning to do is what I believe has become customary in retail cases with these types of agreements was to request some language that simply says nothing in the dip order is going to encumber the assets that are owned by American Greetings that are in Rite Aid's possession and that the American Greetings owned assets are not part of the dip collateral. And typically what you see in these paragraphs is also that, you know, the debtors will continue to pay over the proceeds that are held in trust in the ordinary course. I don't see the need to object or insert this language in the interim order as long as perhaps debtors counsel can simply say, you know, aver on the record that to the extent there is American Greetings owned property. that right it has in its stores or otherwise in its possession, that that's not dip collateral, and it's not going to be encumbered. With that, Your Honor, unless you have any questions, that's all I have today.

Thank you. In other words, you're looking for a representation to that extent? Or you want that included in an order? Well, I think we don't need it included in the interim order if debtors' counsel is willing to state on the record that, you know, the American Greetings owned goods are not part of the dip collateral and will not be encumbered. And then we can just include that paragraph in the final order. But if it's easier, we can propose language for the interim order. I was just trying to be sensitive to the fact that debtors' counsel is drinking from the fire hose, as we all are today.

I mean, Bruce Leapingard. Yes. I'll get to Mr. Moulton in a second. Yes, go ahead. Again, for the record, a partner, Anna Manager from Kirkland and out, it's proposed counsel to the debtors. Your Honor, what I can represent, and hopefully that resolves the issue, is that it is not the intent of the dip order or any of the provisions in the dip credit agreement to encumber

anything that the debtors don't have title on. Whether counsel's, clients, goods fall into that bucket or not, I can't say here. I can't stand here and say, and I'm sure we'll work out language in connection with the final dip order. But certainly I'm more than happy to represent and agree it's an unequivocal representation that to the extent right or any of its subsidiaries have goods to which they do not have legal title. We don't have any intention of uncovering this. All right. That, it just underscores what is accepted the law. You're not offering a lien on not a state property.

So. Thank you, Your Honor. One last thing is that my comments apply equally to the store closing motion, but we'll work cooperatively with debtors council in advance of the final orders being submitted. Fair enough. Thank you, Mr. Zeldon. Thank you, Your Honor. Good afternoon, Your Honor.

David Martin again here for Brown-Rundick, here for colleague counsel for the plaintiff's executive committee. in the opioid MDL, cited in the Northern District of Ohio, and created in 2017. Your Honor, the MDL, and I'm going to get to the dip issues in a minute, but I thought it appropriate to bring up a few remarks about the opioid claimants, which you heard a tiny bit about, but not a lot about. The National opioid litigation MDL is the home

to thousands of plaintiffs who have sued opioid manufacturers and distributors as well as pharmacies such as right aid, among others. The plaintiffs in the opioid MDL, Your Honor, are principally government entities, cities,

counties, other local municipalities, as well as Native American tribes. Pre-petition, Your Honor, the debtor was facing approximately 14,000 lawsuits, we understand, 1,400 lawsuits from governmental entities. I want to be clear, 1400 from governmental entities and tribes, as well as many private entities and persons, including personal injury victims, hospitals, third-party payors, have also alleged claims and have prosecuted claims, both in the MDL and

otherwise, claiming that right aid is responsible for their part of the opioid crisis. The wider PEC is responsible for coordinating trial and settlement efforts. John, or it's important to say that the MDL claims, we understand, constitute approximately 84% of the litigation claims against right aid. The MDL, as many of you know and many of you has read, has fostered many billions of dollars of settlements from those companies that assisted in fostering the opioid academic that continues to ravage this company and has helped develop innovative opioid abatement regimes to foster healing and relief throughout the nation. And the MDL has also, Your Honor, played a critical role on behalf of governmental entities and other opioid claims. in each of the opioid-related bankruptcy cases, including Purdue, Malincrot, and the first opioid case, Incis. We've learned a lot of lessons, Your Honor, from those cases, and one of the most important lessons has to be that these cases, including this one, Your Honor, have public policy and national health impact.

The victims of the opioid crisis are critical stakeholders in these cases, Your Honor. The victims in the governments must have a voice in the bankruptcy case and how the company that exits bankruptcy, whether through a sale or reorganization, operates so that the opioid epidemic is abated and remedied, and so that similar national harm can not be effectuated by these businesses again. Mr. Susker touched briefly on the opioid plaintiffs, but said very little. in his opening remarks about the opioid liability. Not a word was said about the opioid crisis or debtor's role within, or as I just mentioned, the thousands of cases against right aid by governments, tribes, private individuals, and other governmental entities. Your Honor, this is an interim hearing on less than 24 hours notice.

suffice it to say that we've all been involved in major cases involving lots of paper, but I'm going to second the statement said by one of the folks who just talked in front of you. That's it. The paper here, I think it was Mr. Sponder. The paper here has been just unbelievably detailed and, you know, and fulsome. it goes without saying, Judge, and I'm going to repeat the statements that have been made by others, that all relief should be interim here and do no harm and should be able to be revisited at the final hearing. This is especially true, we believe, Your Honor, for provisions that are aimed at hamstringing the estate and unsecured creditors

for the benefit of pre-petition lenders and dip lenders. In a case that we see on its face being solely run at this point for the benefit of secured creditors, that will likely end in a credit bid for everything other than a lexer. There is no reason to grant, at this point, a final order as to the waivers that were articulated, let alone doing so now at an interim hearing. That being said, Your Honor, the court should be called. clear today that all these issues in front of Your Honor today, both in the dip and otherwise, should be preserved for a final hearing when the parties can get up to speed and prepare

and interchange with the debtor, and when a committee or committees are constituted and have an opportunity to weigh in on behalf of general unsecured claimants in general and the opioid claimants in particular. I want to focus on four things, Judge, that we believe must clearly be reserved for a final hearing. It does appear that the interim order makes this

preservation, at least with respect to one of the items, but there was ambiguity with respect to some of the other issues I'm about to talk about. And then just recently, I heard that at least the debtor

seeks, you know, with the dip lender a final order now. Number one, the interim order paragraph 10, Romanette 10 at docket entry

number 38, the exhibit there next zip 2. This is the surcharge waiver, Your Honor. The interim order makes clear that the interim order does enact a waiver on the surcharge pursuant to a code section 506C. It does seem to state that in general,

the surcharge is waived. Just want to be clear, and Your Honor should make clear, that there is no waiver of the estate's right to surcharge collateral in this interim order. The second point, Judge, I want to raise, is interim order paragraph Romanette 11. This is the equities of the case waiver. We just want to make clear an urge that the interim order preserves the final hearing on this proposed dip, the creditor's ability to keep this exception alive. The third point, Your Honor, is interim order, paragraph 39.

The no marshaling provision is simply inappropriate, we believe, at an interim hearing. This needs to be preserved, at least through the final hearing. This needs to be preserved for the dip lenders and the pre-petition lender. Item number four, Judge, leans on the proceeds of avoidance action. This, too, should be preserved, we believe, to the final hearing. Simply put, Your Honor, we believe there's no justification or urgency today as to why these matters, particularly the marshalling and liens on proceeds of avoidance actions, cannot be reserved for a final hearing when parties in interest have at least some modicum of time

more than 12 hours to investigate the circumstances surrounding these cases, the dip, the collateral, and the liens to see whether any of these deviations from protections expressly granted to creditors and unsecured creditors in the code are appropriate in this case. I do note, Your Honor, I'm informed that there's been a second hearing, a second day hearing proposed before, Your Honor, or before the 16th of November. And again, we see no reason why these matters can't wait till then, and particularly, as I said, when a committee or committees are constituted to have an opportunity for the unsecured creditors to have a meaningful way in regarding these issues. Again, the debtor is crystal clear in its papers. They anticipate giving effectively, we understand very little. some would say near zero to unsecured creditors, including the victims of the opioid crisis and governments

who have spent years and will now spend decades attempting to remediate the harm caused by the opioid crisis. This case, again, is being run seemingly at this point for the secured creditors and in circumstances where the code is being used to liquidate the creditors' collateral. And we know that is generally not what the code is intended to be used. for. These types of secured lender provisions must be carefully scrutinized. Putting all these issues off to the final hearing, we submit gives the court, the creditors, the unsecured creditors, and a constituted committee or committees opportunities to do a bare minimum of diligence

and weigh in with their concerns, objections, and have an opportunity to negotiate these issues with the relevant parties. Judge, that's all for my remarks today. I thank Your Honor, as always, for your attention. Thank you. Thank you, Mr. Moulton. All right. Would Your Honor like to hear from anyone else on the phone before I respond?

I don't see any other hands up. So you may respond, or do you want to take time to review any of the language specifically? In other words, I could take a break. and meet with on the McKesson issues, if that would help. Sure. Your Honor, I think that would be helpful. All right. Why don't we take roughly a half hour break?

It's a quarter to three. And I'll meet with counsel for the debtors and also counsel for McKesson and chambers. All right. Thank you. We're going to restart. We've had some technical issues for those. who are listening in or watching remotely. I've also met with Council for McKesson and the debtor and we'll touch on that a later point in time. Let's proceed with the other

first day matters, council. Good afternoon. Good afternoon, Your Honor Ross Fiedler, Kirkland and Alice on behalf of debtors. It's great to be before you again. I don't think we've handled joint admin, so unless your honor has any questions, we respectfully Granted. Go on. On to the next one. Cash management. I understand there's no outstanding objections. We do need a fund payroll immediately, so we need to get that entered. Let me turn to the U.S. trustee, Mr. Sponder. Do you want to let me know as we go through these if there are specific issues?

That's fine, Your Honor. All right. So with cash management, any issues that you haven't worked out? No, we've worked out all our issues. Thank you. All right. Any other parties wish to be heard? Granted. Thank you, Your Honor. The next is bid protection. Now that I said all that, let me help my recorder here.

So we've done joint administration, which is number 33 on today's calendar. Cash management, there with me, number 43. Thank you. Your Honor, if I may. We also, this is Jeff Sponter from the Office of U.S. Trustee. We're still waiting to get the final order, so we have not, although we're resolved, we haven't received the final of those. And I'm assuming all of these are going to be ordered to be submitted? Yes, most of them require no changes. So it's just the order that's been filed.

The order that's been filed is the latest version. So if it's cash management, is that the latest version? I don't believe another cash management is the last. I don't know, Your Honor. I would say this. I'm reserving our rights, but I haven't seen any final orders. How about this, so we don't make it uncomplicated? Why don't I just mark everything as we go through them, order to be submitted,

and you send us the final version with notice to the U.S.T. As far as cash management so that we can make payroll, and market it, also entered as a bench order so ordered today from the bench, so that there's no issue as far as using cash for payroll. Great. Thank you, Your Honor. All right. Next up is bidding procedures, docket number 33. He filed three declarations from Mr. Cohen at docket 35, Mr. Rifkin at docket number 36,

and Ms. Freka at docket number 34. Would just like to enter those into evidence unless you have any questions, Your Honor. I do not. Any opposition? All right. So there are two issues on this that we're. remain, Your Honor. The first is the bid protections we're seeking to grant 3% of the aggregate purchase price on account of the retail sale process and 3.5% as embedded in the META Impact APA. These protections are key to incentivize competitive bidding and are eminently reasonable here.

So unless Your Honor has any questions, we would reserve the trustees' comments on that. Thank you, Your Honor. Jeff Spontor from the Office of United States Trustee. Your Honor, the United States Trustee filed an objection to the bidding procedures at Docket Number 77 shortly before the hearing. Let's set forth in that objection the U.S. Trustee objects to the granting of the bid protections. As to the right aid assets, there is no stalking horse purchaser yet. As such, it is premature, we believe, to grant the bid protections concerning the right aid assets. writing and assets. As for the elixir assets, Your Honor, although there is now a stalking horse

that's in play, and I think that just occurred yesterday or over the weekend, it's also premature prior to any sale to grant the bid protections. During the break, I was able to look at some more of the bidding procedures, and I will note, for Your Honor, that it appears that the bid procedures provide two business days' notice of the entry of a stalking horse agreement and allows objections to the stalking horse bitter designations. So that is in there. So that is helpful. Still have our objection.

The second concern, Your Honor, is the privacy concerns and the appointment of a consumer privacy embudsman. It's our – we haven't had a lot of opportunity to review the privacy policies, Your Honor. Nor have I even had a chance to review the declaration of Ms. Regica regarding the privacy policies. But I did have a conversation, at least with her. we don't we're just not sure that the that the privacy policies are clear that that they do not prohibit the transfer pie so with that your honor the can't think of maybe an alternative and maybe just parse out the consumer

privacy embudsman issue and allow the procedures to go forward and maybe come back to that maybe when a committee's also because it is customers and patients and they should have a say in that as well. That's basically good. Thank you, Your Honor. All right. Council? Yeah, a few comments, Your Honor. On the Med Impact APA, that deal would not have been done absent a break fee. I think it's very standard for a stock and horse bidder to get that protection.

And so we think that's reasonable here, as it has been in many other cases, Bedbath, David's Bridal, Six Terra, and a number of others. And same goes for the retail assets. On the consumer privacy on Budzman point, we are requesting that any sale of assets be able to proceed here without the appointment of a CPO. As we make clear, Ms. Freka's declaration, we have two consumer-facing websites which contain privacy policies that are applicable to PII. And I won't go into the specifics of the policies, but based on the language of 361, 363B1, those policies are not implicated. here, you know, and even if the code were implicated, the transfer of PII in any sale would be consistent with our privacy policies and HIPA requirements. And so we don't think appointment of a CPO is necessary here and we'll rely on the testimony in Ms. Freka's declaration. All right. Well, what are your thoughts on carving that out from the bidding procedures?

Does it undercut the bidding procedures orders to allow the committee or the trustee to review the privacy issues at a later point I think we would prefer to go forward with the relief that we requested not only because it's baked into the bidding procedures but it's also baked into our store closing sales which are ongoing in the interim period so I think we would rely on the argument made in our papers and miss Freikas declaration all right as far as the break the proposed breakup fees the court has approved them in the past and has viewed them as serving an important purpose. Before I rule, Mr. Chesley, did you want to be heard?

I don't think so, Your Honor. I believe you were articulating our position here, but on behalf of the stocking horse bidder, we've spent weeks on this transaction. Many hundreds, if not thousands of hours, bankers, lawyers, and other specialists, and we could not, nor would we have gone forward with this transaction, without the bid protections, the debtors negotiated us down from what we thought was a more market-based to the 3.5 percent, but we're willing to accept that to move forward as the stock lores. All right. Thank you, counsel.

As I've indicated, I have in the past in other cases, along with my colleagues on the bench, approved such protections. I've always done so, though, with at least the reservation of rights that's inherent for any court order. A court always has the inherent authority to review an order entered if it turns out that circumstances warrant a review of the order. If it turns out to be inconsistent with applicable law or facts turn out to be as not as represented, for instance, those are just two situations. I'm going to approve the breakup fees, as I've done in the past, with that admonition, both for the elixir and for the retail process. I think I offer those admonitions knowing that at the end up, I offer those admonitions knowing that at the end of the day they always seem to have served a value of purpose or have become irrelevant

when we get there so if facts or circumstances warrant a review we'll look at it another point in time but I don't foresee that but I will approve it I do want the car I want to provide the committee and the US trustee with the ability to further explore the carve out for the personal identifiable information. How best do you suggest we do that? I'm happy to make it subject to a committee review within 10 days of their appointment. I think that works, Your Honor.

All right. Mr. Sponder, does that... That's fine with the understanding that if the committee has an issue, they can have to... They'll bring it in front of me and we'll have it on a shortened time. So with data, so I'll ask it, I'll mark an order to be submitted then. if you could just make those changes. Great. So that's number of... Thank you.

Thank you, thank you, counsel. Mr. Baker, you have raised hand? All right, then. We'll strike that. That's number 51 on today's calendar. All right. Mr. Beecherliff, continue, please. Mr. Baker?

Your Honor, it's actually Nick Baker is an associate of Sullivan and Cromwell. This is Andy Dieterick. Oh, that's... All right. Good afternoon. For the stealth approach to your hearing today and for a little bit of disorderly. But, Your Honor, we represent a client that is a strategic bidder that was not contacted as part of the earlier process.

That client is, I don't have permission to disclose the name of the client today. It's a household name, I will say. And the disclosure itself would take a communication strategy. We were very surprised to see the pace of this today. We had had discussions with Govindheim and had not understood there was going to be anything imminent, let alone a separation of the PBM from the rest of the operating business, which at least for this client, it would be a significant and fatal problem with a whole company marketing transaction. The approval of bidding procedures and stocking horse protections on the first day of the case without notice to us or the other parties, we think, is aggressive.

We understand that some cases require an aggressive time people. We've done those cases ourselves. And we appreciate all the dynamics. But, Your Honor, we're just appearing today to ask that the MNA, that the approval of the bidding procedures and the stocking horse protections be delayed until a subsequent hearing. But we can have a little bit more ability to review. Can have a discussion with the company. can get permission to disclose the client's name

and hopefully can not make sure the case doesn't cross a red line today where steps are taken that make it impossible to have a whole company transaction. So I do apologize for the traumatic appearance and I wish we had more time to, we were more organized here. But I guess we would ask that the bidding protections be kicked off of pursuant to the U.S. trustees' objection and that we have conversations with the company. I don't know where those conversations will lead, but I do think that that is the rightly to proceed. If we have to approve the stocking horse bid today or bidding protections today, at a minimum,

we'd ask that the schedule be delayed. We think that requiring final bids by November 16th for a business of this complexity and significance is, frankly, a ridiculously aggressive time table. And 13 strategics, apparently, if I read the presentation, were contacted. We think that it's a woefully insufficient number. Our client was not contacted, but our client is indeed very interested. So I'll leave that situation in your lap, and I do apologize again for it. But I don't know what else to do today faced with what was really an incredible surprise that this case is proceeding at this pace and that the fiduciaries put us

in a position that we have to appear today with, you know, when that our caller stays. No apologies needed. I understand the circumstances. My understanding was, of course, in listening to the presentations that the bidding is not limited to any segment or that there is bidding contemplated for the entire enterprise. But let me hear from counsel for the dinner. There is a, Your Honor, there is a separate sale process for retail and a separate one for Elyxer. We are accepting any and all bids through those processes, and I'm happy to get into the need for speed here and why the timeline is critical,

not only because it was negotiated in the dip facilities, but also in the RSA, and failure to meet those deadlines could lead to termination rights. That said, we don't even know who Mr. Diedrich represents, and I'm not sure he even as standing to bring these claims here. Well, what I'm going to suggest is this. I was prepared to and did approve the motion with the caveats that we've discussed. That doesn't limit negotiations between the debtor and any prospective bidders. The door is open. We have ample time and there's maneuverability under the terms of the bidding procedures to extend the deadline.

I doubt anybody is going to disregard that opportunities, especially the lenders, if it looks like there could be a workable transaction. So I'll urge – I appreciate Mr. Dieterick your involvement. I urge you to have your clients or for you to reach out for debtors' counsel. There will be a committee appointed shortly, too. And if need be, my doors are always open and the parties can come back in to look to. adjust timetables. But we want, I'm going to, as you can probably imagine, my concern, too, is always for administratively insolvent cases going forward, and delay never, certainly tends to lead to that. So the door is open for your client to continue discussions.

Thank you. Thank you, Your Honor. We understand. I have one, do have one question, if I may. The breakup fee, is that due if the deadline is passed or only if there's an overbid? So if we're not able to get a bid in by the November 16th deadline and an extension would be required, is the 3.5% breakup fee due in that circumstance? Counsel? On the elixir APA? Yes. On the elixir, yes.

There are a number of circumstances in which the break fee would be owing if we miss a deadline under. the bidding procedures that would not give rise to the immediate break fee. And if they terminated, if Med Impact terminated the APA, they would not be entitled to a break fee. Does that answer your inquiry? I think so, Your Honor. Thank you. I appreciate the answer, counsel.

Thank you. All right. Then let's continue. Thank you, Counsel. Thank you, Your Honor. Thank you, Your Honor. Next up is customer programs at DACA number eight. All right.

unless mr. Sponder has any comments I think this one is uncontested as well and we would request entry of the order mr. Sponder I'm gonna step in on this one we did negotiate the terms of the order prior to today and Larambeaski with the office of the trustee and we believe we worked out the language but we have not actually looked at the the resulting order that that gives filed on the docket and hopefully incorporates everything we discussed all right then The motion will be granted subject in order to be submitted upon review as well by the U.S. trustee. I'm just looking on my calendar.

This was number eight on the docket? That's right, Your Honor. All right. That's number 46, Kia. You're welcome. So the U.S. trustees, assuming the language is in there, is not opposing the entry, correct? Assuming that language is in there and you're on it is, correct. All right.

Thank you. Market order to be submitted. Thank you, Your Honor. Next up is the wages motion. Obviously, our employees are the lifeblood of this company. We have agreed on a form of order with the trustees' office. We are not making any payments on account of insiders in the interim period or paying any amounts that exceed the cap under 507.84. So unless, Your Honor, any questions, I think this one is consensual as well.

Docket number 17? This is 17, yes. All right. key as number 35 on the calendar mr. Sponder thank you your honor Jeff Spotted from the office of United States trustee we are resolved on this same issue is to make sure that our changes are incorporated in the order that's been filed so if you can mark it order to be submitted that would be fantastic for any concern so that payroll is not interrupted I'll have it so ordered from

the bench subject to the entry of the the order thank your honor next is the critical vendor motion at docket number 18 I believe we are resolved on this one as well so unless mr. Sponder has any comments we request entry the order miss Bielski thank you your honor Lauren Bielski as the same issue we have agreed to what we believe will be the final order but we haven't looked at any of the final orders that were actually final all right then I I will mark that granted obviously with all these motions the court has reviewed that the underlying motions but the court will

review the orders that submitted will mark this OT granted but OTPS thank you your honor so the next up is creditor matrix at docket number eight we do have one issue that remains outstanding that I'm sure you're aware of while we ordinarily seek to redact the home addresses and email addresses of individuals for the reason set forth in our motion here we're also looking to redact names as well as the home addresses and email addresses of any individual on any paper filed during the cases. Your Honor, we have HIPP obligations that specifically apply to cover entities like Right Aid.

It's very difficult for the company to ascertain which of its creditors, customers, employees, and equity holders are also patients of the company. And so it would put a huge burden on the company and the claims agent to have to part through all of our individual creditors to determine who are who is also a patient. So suppressing the names of those individuals will present the inadvertent disclosure of protected health information and we think is undoubtedly appropriate under 107 C1 of the code. Ms. Bilski. Madam, if I could have a few moments at the point.

Yeah. Thank you, Lauren Bielski with the Office of the United States Trustee. Your Honor, familiar with the U.S. Trustee's position. on the redaction motions because the bankruptcy code and rules tell us that the debtor shall file schedules that list the name and address of creditors. There are, of course, exceptions. The motion here asked to redact names, addresses, and email addresses of all natural persons because they made the individuals on the schedules can be customers of the debtors,

and to include their names might be a violation of HIPAA, and also because it could create an undue risk of identity theft or other unlawful injury. The debtors state they need to redact the information for all creditors, all individuals, creditors, including employees and equity holders. Because given the breadth of the debtor's customer base, it is, and this is, quote, difficult to ascertain which of the debtors' customers, individual creditors, employees, and individual equity holders are also patient, so as the HIPAA, I think is what counsel just stated.

Accordingly, a wholesale redaction would avoid any inadvertent disclosures. I'll start by saying that we, of course, recognize this is an interim order, but our concern is the slippery slope that we start going down. when debtors ask for a wholesale redaction of information for all individuals because it may implicate HIPAA and because there may be an outside chance that it could create an undue risk of identity thefts. Today we're talking about this in a vacuum because we don't have the schedules, so it's not clear at this point whether the HIPAA concerns would exist for creditors of all of these debtors.

Yes, maybe the pharmaceutical debtors, but would it apply also for just the retail debtors? And we're not even sure where these customers would appear on the schedules, the patients, the customers that might be implicated with HIPAA. This isn't a case like one of the cases before you're on a BlockFi where the customers are in fact the creditors or the retail case at Davis-Kridal or the customers out of creditors. It's not clear here if the debtors, patients, the customers are also going to be creditors or what are their schedules they might appear on. So while I don't think we can parse all of this out today,

runner I understand interim relief may be necessary we do think we need more information before a final order would be able to be answered on these issues council what docket number was this at just trying to help hold me along just give me a moment here on second number eight I agree with the US trustee that we need more information I don't know what the impact and whether they're truly listing the name of the creditor in a schedule is a HIPAA violation or not or or indeed what part of the schedules they would appear in.

I'm going to grant an interim basis, but before we get through a final hearing, we're going to definitely have to flesh out the legal basis and the risks that would be there for these names. And we may have to explore whether it's appropriate for employer and insiders as opposed to potential creditors who just owed because of their status. as a pharmaceutical customer. So I'm going to grant it on an interim basis.

I'll definitely want to explore it later on at the final hearing. Thank you, Your Honor. 34 on Kiev. Thank you. This is our separate code. Thank you, Your Honor. That's it for me for tonight. All right.

Thank you. Good afternoon, Your Honor. Zach Manning, Kirkland, Ellis, on behalf of the debtors. Turning now to what we call the store closing sales motion, this is filed at docket number 37. It's agenda item number 11. We submitted two declarations in support of this motion. Declaration of Mark Liebman filed at docket number 39, and the declaration of Elise Freka filed at docket number 34. We've just asked for good order to admit those into the evidence now.

And the opposition? And as to the relief itself, we have to... understand that the motion is not opposed. We had a conversation with Landlords Council. You had a few comments that we'll address with drafting on the order on the back end. We'll submit a revised form of order that will be agreed to it between the parties. Unless your honor has any questions to propose to reserve it for the order, and we'll submit that to Chambers for entry. Oh, no, I'm fine with it. I'm going to mark it. I'm Order to be submitted, key, it's number 52.

Thank you. And the declarations of Mr. Stein and his preka are committed to evidence and support thereof. All right. Thank you, Your Honor. I'm sorry, Mr. That's right. Thank you, Your Honor. Jeff Bonner from the Office, United States, Trustee.

We are mainly resolved on that order, Your Honor, and I apologize for not jumping up a little bit sooner. It's the same issue as we went through in the bidding procedures that there is a paragraph in this order that sets forth that a consumer privacy emudgment is not required. So we'd like the same language that we could carve out. To carve out. Thank you. That's fine. Thank you. So subject to carving out the language with respect to the consumer

ombsman, who'll be granted? All right. Thank you, Your Honor. That's all that I have for today, so I will now turn it over to my colleague. Okay. Next up. Afternoon, Your Honor, Mark McHane, Kirkland, and Ellis proposed counsel for the debtor. I know agenda number 10 is the obliquely named debtor's motion for an order approving certain dates and protocols.

Intriguing. Intriguing name. Very intriguing. Your Honor, this is the day, this is setting the dates and the protocols for a confirmation hearing. And we've, and as Mr. Susberg learned earlier today, we did file a plan, and we'd like to set a schedule for it. There's dip milestones and anticipated RSA milestones that would require us to have a confirmation hearing by February 15th of next year. So we are asking if it's consistent with the court's calendar to schedule a hearing on February 14th, we're coming forward to today because we're trying to use all 122 days from the filing of the plan to that hearing. And to do that, we wanted to set the first date of an obligation before the second day hearing, specifically 28 days from the day we'd like people to serve us with discovery requests. We expect a committee will be formed and we'll have counsel by then and be ready to go, but we just wanted to put the date out there so we could use all the time available to us, recognizing

that speed is a serious issue in these cases. We also have already taken steps to use document repositories and other things that have already been provided in the underlying, some of the underlying disputes, including the MDL that you heard about earlier today. So we're asking that your honor, under the order, recognizing that once a committee is formed, we can engage with them if they want to seek potential modifications of that are on dates. I understand the UST is opposing. Ms. Bilski? Thank you, Council. Thank you, Your Honor. Lauren Bielski with the Office of the United States Trustee. That is our concern is that the committee who will be involved in this case have an opportunity at the outset to have a say in the scheduling,

especially when it includes dates such as discovery deadlines and the like, and, you know, we're going to endeavor to get a committee in as soon as possible. We don't see the harm in a delay to at least have that done with the input of the interested parties and not have it done today on the first day of the case before you can have an opportunity to solicit. All right. Thank you. Thank you. Counsel? Your Honor, I just would reiterate, I'll come to the mic. I'll just reiterate that the first obligation of any party that would potentially oppose the plan,

including the committee, is 28 days from today, which is well after the – we expect the United States trustees' office to form the committee and have counsel. All we wanted to put out was the obligation so that when they engage, they know to reach out with us and to start drafting the request. All right, thank you. I'm going to make a change to that schedule. Let me give these all some dates. Second day hearings are going on at November 16th at 2023 at 1 p.m. I'm setting some omnibus dates

because I know we're going to need them. December 4th at 11.30 a.m. January 8th at 1130 a.m. January 29th at 1130 a.m. And I'll just give one more, February 20th at 1130 a.m. As far as the date requested for, you were seeking for confirmation hearing, Dave? That's correct, Your Honor. I'm going to bump that if it's okay with the lender, and even if it's not, December 19th, four days.

So December 19th. You said December, did you mean February? I'm sorry. The date you had for confirmation here was... We were proposing Valentine's Day. February 14th. Correct. I'm sorry.

Well, we know where we can get Valentine cards. You don't know who owns them. Sorry, you're out. I was going to put that on February 20th if that works. Very good. Thank you, sir. Appreciate your help. And we'll submit a Verizon form.

What was the date in that schedule for the disclosure statement hearing? Disclosure statement hearing? December 29th. Your Honor, I don't want to tell you that, but it's December 29th. Don't blame the messenger. December 29th? Yes, Your Honor. All right, we'll leave it for now.

Thank you, Your Honor. All right, thank you. Obviously, oh, with respect. to the U.S. trustee's concerns. Needless to say, this is with reservation of rights for the committee to come before

me by a letter and more likely by a conference call to discuss timing if there's an issue. Thank you. Thank you. Good afternoon, Your Honor. For the record, Noah Sosnik from Kirkland-Ellis on behalf of debtors. Your Honor, I'll be taking us through the balance of today's

operational and procedural first motions. Beginning with the case management motion, filed with document number three. Your Honor, this motion requests implementation of standard procedures aimed at easing the administrative program in the court, and the relief requested is standard granted in many large cases in this district and others. The motion is unopposed, and so unless Your Honor has any questions, we respectfully request entry to the order. That's one. Do you have an agenda number? I believe it's agenda number of 13. Yeah, just let me know those. That helps.

All right, key, it's number 47. Nope, that was, wait a minute. No, sorry, there was agenda number 12. Do you see it? That's it, 38. Thank you. Okay, great. All right. That's granted. Great, thank you, Your Honor.

Next is the debtor's retention application for Crowell, serves claims and noticing agent. Your Honor, Kroll has vast experiences in cases of the size serving in this role and purposes to easy administrative burden on the debtor in administering these large Chapter 11 cases. Your Honor, we filed a declaration from Benjamin Steele from Kroll. It was included as Exhibit B for retention application. I'd like to move that into evidence at this time. Any opposition? Accepted into evidence.

Thank you, Your Honor. This application is unopposed. We respect the request entry in the order. All right, as long as they make sure they're not hacked again. Any opposition? Thank you, Your Honor. Jeff Sponder from the Office of the United States Trustee. We suggested various several revisions, and they've all been incorporated, as I understand it. So we are fine with the work. All right. Motion will be granted. Thank you, Your Honor. Your Honor, next item on the agenda is the debtors.

sofa and schedule extension motion, which filed a docket number four. The debtors request a 38-day extension of the 14-day deadline to file sofas and schedules, bringing the new deadline to December 7, 2023. This motion is also fully consensual. We worked with parties in interest to address their comments, and so unless Your Honor has any questions, we respect the request entry of the order. All right. You as Trustee, any concerns? Thank you, Your Honor. We can work on the date so that we can also hold the 321 in early to mid-December. All right.

Key of this number 39. And motion to be granted. Thank you. Thank you, Your Honor. Your Honor, the next item on the agenda is the debtor's taxes motion filed the docket number 13. The debtor seek authority to pay up to $68 million in pre-petition taxes, of which they expect $41 million will come due in the interim period. again this motion is fully consensual we've addressed and included comments from parties and interest and so unless your honor has any questions we respectfully request entry in the

order all right u.s. trustee is on board yes we are on board again we'd just like to look at the final order as with all these will be granted with the order to be submitted kia this is number 45 we need to keep the government operated we need to Need the tax money. That's right. Okay, Your Honor, the next item on the agenda is the NOL motion filed at Dogget Number 7. The debtors request implementation of procedures into tracking transfers of stock, which may impair the debtor's ability to take advantage of favorable tax attributes in the future.

The procedures request in this motion are standard and have been approved in similar large Chapter 11 cases. Again, this motion is fully consensual. And so unless Your Honor has any questions, we respect to the request entry the order. All right. No objections? Correct, Your Honor. Thank you. This is 42, Kia, and this will be granted.

And with respect to Kroll, it was number 47 in case you needed that, the appointment of Kroll. Thank you, Your Honor. You're welcome. The next item on the agenda is the debtor's record date motion, filed a docket number 16. It's agenda item number 17. Your Honor, the debtors seek to establish a record date to measure debt holdings in case the debtors down the line need to request a sell-down order to take advantage of certain favorable tax attributes. This motion is purely procedural. It does not impact the substantive rights of any party, and it's fully consensual as well.

We preview this with the U.S. Trustee and address their comments. And so, Lester Honor, has any questions. We respect the request and treat the order. All right, thank you. Mr. Sponder. Thank you, Your Honor. Jeff Sponder from the Office of United States Trustee. Your Honor, this one, although consensual, we still want an opportunity to review the order because what happened here was this motion was actually revised, and we haven't had a chance to review it since it was revised, and I think it was revised sometime yesterday.

So we're on board with what we've been told. We just want to take a look and review the order. Well, that's fine. We'll handle it like we would be others. Motion is granted. Again, this is key at number 36. and it will be marked order to be submitted upon review by the U.S. trustee. Understood.

Thank you, Your Honor. The next item on the agenda is the debtor's insurance and surety bonds motion filed a document number 12. Your Honor, the debtor seek authority to pay pre-petition insurance costs, maintain the ability to amend, terminate, or enter into new policies in the ordinary course, and maintain their surety bond program in the ordinary course, and satisfy pre-petition obligations related there too. Your Honor, this one is also fully consensual. We preview changes with the U.S. trustee.

And so unless your, Your Honor, has any questions, we respect their request entry of the order. All right. Kiev is number 40, where it will grant the motion. Order to be submitted. Thank you, Your Honor. Your Honor, the final item on my list is the utilities motion, file of document number five. The debtors seek to establish an adequate assurance account to ensure that utility providers will continue to provide service on a post-petition basis. Your Honor, there is one change, there's going to be one change to the order that was filed on the docket.

We received some comments from some of our landlords earlier this morning. It would be one small change to the order that was filed, but otherwise we understand this motion. It's fully consensual and respectfully request entry of the order once submitted. And this for like the others with a second, with a final hearing. The final hearings on the 16th, correct? That's right. All right. So, Mr. Bonder.

Thank you, Your Honor. Jeff Sponder from the Office of the United States. similar to the other ones we're on board. I just find a chance to review the order that was filed on the document. Thank you. All right. This is Kiev's number 44, marked it. With all the orders that are being submitted today,

including those that I have marked so ordered for the bench for payroll purposes, send them to chambers to my law clerk, Becker Earl, and let us know, make sure that we know that the U.S. Trustee's Office has revoked. has reviewed and signed off on it. Understood. We'll do that. Thank you, Your Honor. All right. I think that's all I have. Yes. Thank you. Thank you, counsel.

We're back to the DIP load, correct? Good morning. Good morning. How long ago. Time's on a spectrum these days. Good afternoon, Your Honor. Aparnay and Amanda from K&E proposed counsel to the debtors. Your Honor, I think we are funding. fundamentally down to one issue with the clarifications that I'll describe.

This very much falls into the bucket consistent with what you've done on some of the other orders where we'll need a bit of time to just finalize the language and we'll submit it to be ordered. But I do want to sort of address some of the comments as well as preview what some of these solves look like. So first, and I'll be quick here, but there were some comments in Mr. Moulton's commentary that I simply cannot let go unanswered. The first was that right aid does not take its opioid exposure seriously. As an initial matter, right aid is not a Walgreens or a CVS. We simply don't have the exposure they have.

We're also not a drug manufacturer. And for all the lawsuits he filed, there were approximately 20 million in settlements just to give you a sense of scope and perspective. Two, the one thing he did say that I agreed with was that the government should have a voice. And here, the government has a voice. They've had a voice since 2018, which is when right aid started first working with the various AG's office. And the PEC has had a voice since at least 2020, which is when right aid started working with them. And in 2023 alone, there were 10 financial presentations made to those groups. So they have been fully up to

speed, and we consider them a partner in what we're trying to accomplish here. Second, with respect to the government having a voice, we've been in discussions with the AG's office for months now. In fact, at our request, Mr. James Donahue is in the courtroom. He is the first Deputy General with the AG's office. Last week, Mr. Donahue and certain of his colleagues met with Mr. Stein, or our now CEO and CRO and Mr. Sabatino. So they could hear directly from that group that we are focused, laser focused, on reaching agreement, on conduct and injunctive terms to make sure that whatever behavior it is that needs to

remedied is actively on the way to being remedied. Those discussions have, of course, been going on for years, but I agree with Mr. Moulton that they take on a new level of seriousness when you're trying to resolve it through a Chapter 11. So we expressed our commitment to the various AGs. The meeting was with Pennsylvania, but there were a number of other AGs that we've been in discussions with, and we thought Pennsylvania was the right place to start because it is a Pennsylvania company.

Those discussions will continue, and I am hopeful that we'll be able to be able to to reach agreement on conduct and injunctive terms, but of course no agreements have been reached yet. This, of course, is all information that Mr. Moulton knows as we've been engaging with the the PEC group that he and his colleagues represent for several months now. The second allegation that I can't let go unanswered is that we're running a process for the benefit of the securities. We've all seen what those processes look like. They're ones where the dip Leans up everything in sight on the first day of the case, where there's massive roll-ups on the first day of the case, not on a creeping basis, where there's no plan process, and it's simply a quick 363 sale that leaves behind where the buyers take all the good stuff and leave behind all the bad stuff. I mean, it's certainly not a case where the debtor's file a plan on the first day of the case acknowledging that there will be Guck Recovery available, consistent with the priority set forth in the bankruptcy code.

Again, this is something that's from Moulton knows as we previewed the Guck Recovery. that would be in the plan. And again, as we acknowledged, there is a ton to work through here. I will be the first one to acknowledge that. But there is also a ton of evidence that, certainly from out of the gate, we're looking for a constructive process here. That's evidenced by the countless meetings we've had over the last couple months. Right AIDS, five-year-plus history engaging with the AG's office, and at least three-year-plus history, engaging with the PEC, the DIP facility that we're asking to be approved today, and its limited liens on unencumbered and the plan that we filed. So with that, let me turn to the actual

dip facility. Sherrana, there were three categories of objections left, but they all more or less fell into the same category around the requested waivers. So we will be clarifying, and I'll say this on the record, and it will be clarified in the order, that we are only seeking 506C, 5502B, and marshalling relief with respect to the $200 million new dip term loan facility. There is no roll-up in that facility. Frankly, I'm not even sure if 5060 and 552B even apply when it's entirely new money facility, but to the extent they do, it is important that to get access to that new money that we provide the lender's discomfort.

We will be clarifying the corollary, which is that those waivers, 506B, and marshalling, will not apply with respect to the DIP ABL facility, the DIP file a facility, the pre-petition ABL, the pre-petition FILO, or the secondly notes until entry of a final order. So that's something we'll engage with the committee on. Second, just to clarify, the order as filed already provided, that there would be no liens on avoidance action proceeds until entry of a final order. But I appreciate it's a 121-page order, so I just wanted to state that on the record. It won't show up in the red line because it was already in there, but it's on page 47 and 48 of the existing deport.

Your Honor, with respect to the landlord group objections, I think subject to some words that were still, a whole army behind me is still working through. I think the remaining outstanding objection is the same 506 issue, so the same arguments would apply. And with respect to the UST's objection, again, the Army is hard at work, but the 5060 objection still applies, so same arguments. With respect to the roll-up of the pre-petition ABL and the pre-petition filo, I want to clarify the existing order already contemplated that that would be subject to the challenge period. But we've added additional language to ensure that to the extent your honor deemed, necessary or required following the expiration of that challenge period, Your Honor can fashion whatever remedy you see fit to address. And then finally...

In other words, subject to a further court order? Correct, correct, subject to a further court order. Okay. And then finally, there was concern around the, what's referred to in the DIP order as a specified sale defaults timeline. That's the one that Mr. Stonder referred to as being on a very... rapid timeline. So first to clarify, the specified sale timeline is not the sale process that we're trying to run. It's not the one that Mr. Fiedler walked through. This is the,

this is the doomsday scenario for lack of a better term process. And based on the process we'd like to run, if we're at the point in the case, or despite our best efforts, we are where we are, we will need to move quickly at that point. That being said, it's something that we are, And again, I want to put this on the record. It's something that the lenders and the debtors can commit to continuing to discuss if U.S. trustee and, of course, a committee when it's appointed. But I wanted to clarify that that's, it's only relevant in a situation where all other options have been exhausted to reorganize the company. So, in effect, those dates could be subject to extension upon consent or further court order. Correct.

And the entire process, and we'll make sure this is abundantly clear in the order, that entire process is subject to court oversight. All right. So with all that said, Your Honor, I think to end where I started, I think the open live issue is on the 506 waiver, but I would, Your Honor, I would note, given the other clarifications, including, frankly, for me, whether 506 even applies for the new money facility, we would ask that that remaining objection be,

overruled and we will make sure that folks see the revised order before we submit it to make sure it has all of the clarifications that I've put on the record. All right. Thank you. Council one. Absolutely. We'll take counsel. Go ahead, Mr.

Just to clarify Ms. Yonamajar's comments, again, Ivan Gold, Valen Mackins, her number of the landlord, Your Honor. I have an outright rejection to one of our proposals. proposals on the dip order and that related to the comment I made to your honor regarding the intersection of the 154 rejected leases. The debtor's response is that the lien attaches to these as part of the collateral package until they're rejected, which if you pick up docket number 25 and look at the proposed rejection date for all the leases, it was Sunday. The problem is the debtor has not returned possession of all the leases. So all of these leases are going

to be once you enter the or. order under the rejection motion, are all going to be rejected within about a three-day period, maybe. And for that, we're going to impose a lien on the lease that, as I noted, and I'll cite a case to the court, Austin Development, which is out of the Fifth Circuit, 19, Fed 3rd 1077, there's a split in the case law as to whether that security interest survives rejection. So the privilege of showing up and having a right aid and having it rejected on the first day of the case, they're still lien on it. And we haven't heard. anything from the lenders, legal representatives or their business representatives, to tell me that's

an essential part of the deal, 154 leases that the debtor says have no value, that they've already closed, are really part of the collateral package, that we're going to cloud the landlord's title for two or three days. Are they that inadequately protected? So that is still an open issue. All right. Thank you. I'll hear from counsel. Yes, Your Honor, John Muntola, on behalf of Bank of America. I was rising to raise this point. We are not seeking liens on rejected leases. So I'm not sure what the confusion.

Mr. Gold raised this point before I got up to say that we were fine with it before he just got up again. It was a good argument. I have an email rejecting the proposed language, Your Honor. So I'm, this is great news. Well, what we say here, Governance. Forget the emails. Yeah.

All right? So we're fine with it. I'll take counsel's representation. And then if I can just make a couple of other points, Your Honor. going back to the roll-up point that the U.S. trustee originally raised in that the Address Counsel just addressed. So there is the challenge period provisions in paragraph 13 of the order. And what we are proposing to add is that if there's a successful challenge, then the court may fashion a remedy. I just want to clarify that. That's what everyone

will see in the next draft of the order. And then on the 506C waiver points, Your Honor, in related provisions, I think when we were discussing this initially, some of the the parties were conflating the two dip facilities, they are separate facilities. So the interim order relief we are seeking on 506C, 552, and on the marshaling provision, is solely on the new money dip term loan. All of those other items are for the final hearing on the dip ABL facility. Right. The court's understanding is E1 finality with respect to the new money. Correct. And only the new money are wrong. Yes. And I understand the points about new harm, but we also think there are benefits when someone is willing to lend $200 million to a debtor.

on the first day of the case. So that is all we are seeking, and it is only with respect to the new money you're on it. All right. Thank you. Thank you. Counsel. Good afternoon again, Your Honor, for the record, Leslie Heilman, Valard Spar. Your Honor, I know that we've went a few times around on the 5060, and I'm not really understanding where, you know, we can't, why the new money is separate from a 5060 surcharge waiver. 506 is for surcharging the costs of liquidating collateral. They're being granted diploines on the new money, so there go, they have collateral, and they are going to benefit from liquidating collateral using the new money

in each of the retail stores, to close stores, to operate through the plan, and to the extent that there is no money, we now can't look to that collateral. It's all the collateral, and it's to surcharge the collateral where the freight of the case is not being paid. So, Your Honor, someone will benefit from that new money, but there won't be any collateral to look to if there's an administrative expense deficit. So, Your Honor, in and of itself, I think that makes it that this should be a final hearing issue, where the creditors committee can weigh in, where there's evidence on the sufficiency of the budget, Not today on a first day hearing that is for immediate and irreparable harm to the estate. That's the relief that should be granted today, not letting the freight leave the station and have no ability for the debtor to recoup if there is an administrative insolvency event in this case.

All right, thank you. Last, Mr. Moulton, and then Mr. Spondellis. Judge, do you want me to go before Mr. Spondor? Yes, please. Okay. Yeah, just to actually just very quickly, Judge, I appreciate counsel's concern regarding the opioid claimants and the company's concern for them. I wish that would have been part of their original presentation instead of only having come following my remarks. And I would say I just want to agree that the 506C issue should be pushed to the committee or to the final, you know, to the.

second day for a final order so that the committee can have its opportunity to weigh in, take a look at, and offer your honor, its feelings, honor. Thanks. All right. Thank you, Mr. Moulton. One more. Council. Yes, my name is Jim Donny, who from the Commonwealth of Pennsylvania. I just want to confirm what Attorney Van Amendra said that we have been working with, we in a number of states have been working with them on a resolution on the Open on the opioid claims. We have gotten pretty far in the injunctive side. We've made a presentation

of a pretty comprehensive package on an injunctive relief, and we've been exchanging a lot of information about their financial situation, which is obviously from what you've heard today, extremely complicated, but we are working diligently, and we have had communication with the representatives of the PEC about our process. All right. Thank you, Counsel. Mr. Sponder. Thank you, Your Honor. Jeff Sponder from the Office of the United States Trustee. honor we also agree with that the 506 C should be left for the final order for old money as well as new money we also as I remarked earlier had you know about 15 or so separate issues that we think are minor that we understand are being resolved but

reserve our rights to look at that order same as the other ones and make sure that that those are taken care of thank you all right thank you thank so the court is going to overrule the objection with respect to the The court finds it material, the distinction made between old money and new money coming in. Absent new money coming in from what the court has reviewed as far as the declarations and the submissions, the case may well, would well indeed be at risk. It is not unexpected for a new lender coming in to give new money to a new money to a with the IP to want certain protections, which at a minimum of 506E waiver would provide.

Given that the bulk of the 506 waiver remains applicable to the old money, we'll call it, the existing loans, there certainly is an avenue for the committee and others to take a position that there should not be such a waiver, but with respect to new money, and to the extent it's only applicable to new money actually loaned, but the court will approve the objection. Well, the court will overrule the objection. It's been a long day. With that and with the U.S. trustees' reservation of rights with respect to the language that, the finality, and all, actually all counsel, who've been, who've raised.

concerns. The court will market granted order to be submitted. If there is an issue with specific language, the court will entertain a conference call to hopefully resolve any issues that are open. That takes us to the McKeeson dispute. As a result of discussions with counsel and chambers, we are carrying that dispute to 11 o'clock tomorrow in the hopes that, well, for one, gives all parties the opportunity to review the submission by McKeeson, the court and the parties, but also that there may be some pathway to a consensual resolution. If not, the court is ready to conduct a hearing at 11 a.m., it will be live unless the parties are requesting a Zoom status conference in lieu of a hearing. All right, Mr. Susberg?

Yes. Joshua Susberg, Kirkland and Alice Spafferite. Your Honor, we will be set for tomorrow at 11. We will endeavor in between now and then to coordinate with counsel to McKesson. And I think it may make sense at the outset of tomorrow morning, whether you want to do it at 11 or a little bit before to come back into chambers and just let Your Honor know where we are. I'll be here earlier.

If everybody's here, I'll be glad to sit with counsel. Okay, perfect. And I know that wraps up the agenda. I did just want to say thank you. again to your honor and your staff. I know we submitted a lot of paper. It was a lot to get through, and it was a long hearing. We very much appreciate you guys accommodating us on an emergency basis. Thank you. Thank you to all counsel. Mr. Spondry, do you have another issue or concern? Thank you. Jeff Spond, from the office, United States Trustee. Will tomorrow's hearing be available via Zoom?

We'll make it available hybrid. If we're going forward, obviously I can't make available discussions that take place in chambers, but to the extent we move forward, It'll be a hybrid nature, at least for viewing of parties and parties in interest. I have to be careful with judicial conference regulations these days. All right. We're done? Yes, Your Honor. I'd like to hear that.

Thank you all. Thank you all.