The U.S. publisher of Reader’s Digest, the country’s most popular general interest magazine, is filing for Chapter 11 protection with a plan to swap a portion of its debt for ownership of the company.
Reader’s Digest Association Inc., owned by the New York private equity firm Ripplewood Holdings since 2007, said Monday it has reached an agreement in principle with a majority of secured lenders to erase a portion of the US$1.6 billion they hold in senior secured notes. The lenders will get ownership in return.
The planned filing, which does not include operations outside the United States, comes amid declining circulation, an industry-wide advertising slump and large debts.
In June, Reader’s Digest announced it would cut the circulation guarantee it makes to advertisers to 5.5 million, from eight 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 a circulation of 8.2 million, 2% above the guarantee to advertisers but 12% below circulation a year earlier. Its decision to adjust to rate base suggests expectations that circulation will drop further.
In a statement, Reader’s Digest CEO Mary Berner said the agreement with lenders follows “months of intensive strategic review of our balance-sheet issues.”
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.
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.
