Chapter 11 plan cedes Reader's Digest to
lenders
NEW YORK - The publisher of Reader's Digest, the
country's most popular general interest magazine, said Monday it
will file for Chapter 11 protection with a plan to swap a portion
of its debt for ownership of the company.
Reader's Digest Association Inc., which also markets books and
publishes dozens of other magazines and Web sites, said it has
reached an agreement in principle with a majority of lenders to
erase a portion of $1.6 billion in senior secured notes. The
lenders will get ownership in return.
Already, this year's advertising declines have prompted the
shuttering of several high-profile magazines, including Conde
Nast's Portfolio, Domino and Blender.
Reader's Digest CEO Mary Berner insisted, though, that the
company's U.S. magazines remain strong, with the number of ad pages
down less than 6 percent through the September editions. She said
Reader's Digest titles rely less on luxury brands and high-income
tastes, giving them an added appeal in a recession that has
clobbered much of the print media industry.
"Our brands are home and heartland. Our brands have a very, very
Midwestern sensibility _ a back-to-basics sensibility," she said in
an interview. "Reader's Digest has actually done quite well."
She said some additions for the company, including the magazine
Everyday with Rachael Ray and cooking site AllRecipes.com, have
succeeded as well.
Instead, Berner blamed two underperforming properties the
company agreed to sell off 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.
Even so, Reader's Digest, the iconic monthly magazine founded in
1922 as a collection of condensed articles from other publications,
has been searching for a new niche as the Internet upends the
magazine industry's traditional business models.
In June, the magazine announced it would cut the circulation
guarantee it makes to advertisers to 5.5 million, from 8 million
and lower its frequency to 10 issues a year from 12.
In the second half of last year, the U.S. edition of Reader's
Digest had circulation of 8.2 million, down from a peak of roughly
17 million in the 1970s.
The planned bankruptcy filing, which does not include operations
outside the United States, marks the latest stage in a long
evolution for the company.
Reader's Digest went public in 1990 and was initially 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 Holdings LLC, a New York private equity firm, led a
consortium of investors in a $1.6 billion buyout that took the
company private in 2007. Those investors include GoldenTree Asset
Management, GSO Capital Partners, Merrill Lynch Capital Corp., J.
Rothschild Group and Magnetar Capital.
In a statement Monday, Berner said the decision to file for
Chapter 11 follows "months of intensive strategic review of our
balance-sheet issues."
The company said it will skip a $27 million interest payment on
its 9 percent notes due in 2017 while it looks to build support
among lenders for its restructuring plans.
The agreement includes $150 million in "Debtor-in-Possession"
loans to finance the company during bankruptcy protection. Overall,
the company plans to shrink its debt from $2.2 billion to $550
million following Chapter 11. It said the "vast majority" of
suppliers will be paid in full under the bankruptcy plan.
The company said it will seek further agreements from lenders
and other stakeholders before making a formal bankruptcy filing
within a month. Its largest debt holders, led by J.P. Morgan Chase,
include GE Capital, Aries Management, DK Partners, Regiment Capital
and Merrill Lynch. The company expects to emerge from bankruptcy
protection 45 to 90 days after the filing.
Aside from Berner, all of the company's board members who have
served since Ripplewood's $1.6 billion acquisition of the company
in 2007 have resigned. Two members who recently joined will
continue to serve.
--AP