The bankrupt publisher of Reader's Digest won court approval on Tuesday to access some of the $150 million in funding it has lined up to continue operating while it reorganizes.
Reader's Digest Association Inc was allowed by Judge Robert Drain of federal bankruptcy court in Manhattan to tap into a first tranche of $100 million from the debtor-in-possession loan, which is being provided by lenders led by JPMorgan Chase & Co. It will have to ask the court for permission to gain access to the rest of the funds.
Reader's Digest filed for a prepackaged bankruptcy on Monday.
At a hearing before Drain, a lawyer for Reader's Digest argued that the publisher needs the money urgently to keep its business afloat.
We are in a peak cash period for the company, Paul Basta, a lawyer for the company from the firm Kirkland & Ellis LLP told Drain, adding that it needed the money among other things for its marketing campaign to draw readers and advertisers.
Drain also gave the company permission to pay critical vendors.
Under Reader's Digest reorganization plan, it would slash its $2.2 billion in debt by 75 percent. Senior lenders would then 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 is subject to approval by Drain.
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 and including Ares Management LLC, Eaton Vance, Regiment Capital and GE Capital, among others.
Ripplewood will have no stake going forward and board members from the private equity firm have stepped down. Reader's Digest is seeking new board members.
The Pleasantville, N.Y.-based corporation publishes 50 editions of Reader's Digest and 44 other magazines including household hints publication Every Day with Rachael Ray.
The case is In re The Reader's Digest Association Inc., U.S. Bankruptcy Court, Southern District of New York, No. 09-23529.
(Reporting by Phil Wahba; Editing by Tim Dobbyn)