Reader's Digest Association (RDA), the publisher of the venerable monthly houhold journal the Reader's Digest magazine, is planning to file for pre-arranged bankruptcy protection after it reached agreement on a debt-for-equity restructuring with a majority of its secured lenders.
The investor group led by Ripplewood Holdings that acquired the debt-ridden media for $2.4 billion in 2007, of which $800 million was debt, (See: Investor group to acquire Reader's Digest for $1.6 billion) said that the company's lenders would exchange a substantial portion of the company's $1.6 billion senior secured notes for equity.
The restructuring of debt will result in a transfer of ownership of the company to the lender group, said RDA.
The Chapter 11 bankruptcy filing will apply only to the company's businesses in the US and will not affect its operations in Asia, Canada, Latin America, Europe, Africa and Australia-New Zealand.
Mary Berner, RDA's president and chief executive officer, said the company would continue to operate normally throughout the restructuring process. "This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company."
RDA expects to complete the Chapter 11 proceedings 45 to 90 days after it files for bankruptcy and said that it will not make a $27 million interest payment due today on its 9 per cent Senior Subordinated Notes maturing in 2017. Instead, it will use the 30-day grace period to negotiate with its lender group on restructuring.