The publisher of Reader's Digest on Monday filed for Chapter 11 bankruptcy protection, carrying out its plan to cut debt and transfer ownership of the 87-year-old U.S. magazine and other businesses to a group of lenders.
The company, named for its general-interest magazine packed with family friendly humor and inspirational stories, said earlier this month that its U.S. units would file for bankruptcy as part of a prearranged plan with lenders to slash debt of $2.2 billion by 75 percent.
The corporation, which publishes 50 editions of Reader's Digest and 44 other magazines including household hints publication Every Day with Rachael Ray, said it planned to continue operations as usual. It's operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand are not part of the bankruptcy filing, the company said in a statement.
Reader's Digest is the latest in a string of media companies hurt by an economic slowdown that has cut ad spending and hampered companies' abilities to repay debt.
Advertising is down, circulation is down, there are alternatives like the Internet where people are getting their information, said Richard Mikels, a partner with law firm Mintz Levin. It's a tougher industry than it used to be.
Reader's Digest, founded in 1922 and headquartered in Pleasantville, New York, does not plan to lay off any employees or sell any units in its restructuring.
The plan calls for senior lenders to exchange a substantial portion of the company's $1.6 billion in senior secured debt for equity, transferring ownership to the lender group.
The restructuring plan must be approved by a bankruptcy judge.
One way to deleverage is by turning debt into equity. That will happen more and more throughout the economy over the next several years, said Mikels.
Private equity firm Ripplewood bought Reader's Digest in 2007 for $1.6 billion. It will relinquish ownership to a steering committee led by JPMorgan Chase & Co and including Ares Management LLC, Eaton Vance, Regiment Capital and GE Capital, among others.
Ripplewood will have no ownership stake going forward and board members from the private equity firm have stepped down. Reader's Digest is seeking new board members.
Current management, including President and Chief Executive Officer Mary Berner, remain at the helm.
Over 80 percent of the senior lender group support this transaction and, with this support, the company intends to emerge expeditiously from Chapter 11, Chief Financial Officer Thomas Williams said in a court document.
Reader's Digest said it has secured $150 million in new debtor-in-possession financing, which is convertible into exit financing upon emergence from bankruptcy.
Operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand are not part of the bankruptcy filing, the company said in a statement.
It said suppliers and vendors who provide goods and services to the company will continue to be paid.
The magazine publisher said it expects fiscal 2009 revenue to be down by a low-single-digits percentage. Combined, its magazines reach more than 100 million readers worldwide, according to the company.
Its largest unsecured creditors include R.R. Donnelley Receivables Inc and Quebecor World Inc.
The case is In re The Reader's Digest Association Inc., U.S. Bankruptcy Court, Southern District of New York (White Plains), No. 09-23529.
(Reporting by Chelsea Emery; Additional reporting by Bijoy Koyitty in Bangalore; editing by John Wallace and Gunna Dickson)