Reader’s Digest files for Chapter 11 Bankruptcy Protection

Reader’s Digest: One of America’s most iconic Brand names in print media has file for Chapter 11 bankruptcy protection as it faces falling print circulation in the Internet age and looming debt payments.


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Reader’s Digest files prearranged bankruptcy

By Chelsea Emery Chelsea Emery Mon Aug 24, 1:23 pm ET

NEW YORK (Reuters) – 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.

Reader’s Digest files bankruptcy papers

Publisher looking to cut its debt from $2.2 billion to $550 million

The Associated Press

PLEASANTVILLE, New York – Reader’s Digest Association Inc., publisher of the iconic general interest magazine that began gracing American homes in 1922, on Monday filed for Chapter 11 bankruptcy protection as it faces falling print circulation in the Internet age and looming debt payments.

Known for its heartwarming stories about American life as other publications moved toward edgier fare, the company’s flagship Reader’s Digest magazine has seen its U.S. circulation drop from a peek of more than 17 million in the 1970s to just above 8 million last year.

Magnifying the publishing world’s woes is an advertising slump that already has led to the closing of several high-profile magazines, including Conde Nast’s Portfolio, Domino and Blender.

But Reader’s Digest CEO Mary Berner has said that ad pages for the company’s U.S. magazines are down less than 6 percent through the September editions. The publications’ down-home feel instead of a high reliance on luxury and high-income tastes has an added attraction to advertisers in a recession that has hurt much of print media.

She noted that the company had several successful ventures, such as the magazine Everyday with Rachael Ray and cooking site Berner, however, cited problems with two underperforming properties the company agreed to sell last year: Books Are Fun Ltd., a company that sells books at events and book fairs, and QSP, which assists with fundraising for schools and youth groups.

Still, weakness in ads, lower circulation and a mountain of debt created a perfect storm that led to the prearranged bankruptcy filing of the privately held company.

Reader’s Digest said the prearranged bankruptcy, which only affects U.S. operations, would give lenders a 92.5 percent ownership stake in exchange for lowering its indebtedness to $550 million from $2.2 billion. The filing has gotten the approval of more than 80 percent of the company’s senior secured lenders, critical for a quicker exit from bankruptcy.

The publisher expects to emerge from bankruptcy 45 to 90 days after the filing, which was made at the U.S. Bankruptcy Court for the Southern District of New York.

The company piled on debt following a $1.6 billion leveraged buyout in 2007 by investors led by Ripplewood Holdings LLC, a New York private equity firm, to take Reader’s Digest private. In such a transaction, investors typically borrow heavily to acquire a company, betting that operations would generate enough cash to cover the debt payments.

But signs of trouble have since emerged. In June, Reader’s Digest magazine cut its circulation guarantee to advertisers to 5.5 million from 8 million, and lowered its frequency to 10 issues a year from 12.

Reader’s Digest went public in 1990 and was controlled by a charitable foundation set up by the company’s founders, DeWitt and Lila Wallace. The company bought out the foundation’s shares in 2002. Ripplewood and other investors stepped in five years later.

In the Chapter 11 filing, the company’s senior secured lenders have committed $150 million in new debtor-in-possession financing that can be converted into exit financing once Reader’s Digest leaves bankruptcy protection.

The publisher said the financing should give it ample liquidity for its restructuring. Its international operations are expected to run on existing funds from continuing operations and proceeds from the debtor-in-possession financing. The company said most of its suppliers will be paid in full under the bankruptcy plan.

All of the company’s board members who have served since Ripplewood’s acquisition have resigned, aside from Berner. Two members who recently joined will continue to serve.

Pleasantville, N.Y.-based Reader’s Digest publishes 94 magazines and sells about 40 million books, music and video products each year.

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