Reader’s Digest is once again restructuring its debt and in the process has filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. Under the plan, RD will convert about $465 million in notes to equity, leaving the company with approximately $100 million in debt when it emerges from bankruptcy, which it anticipates occurring in about six months. This is the second time RD has filed for bankruptcy in the last four years.
Among the company's largest creditors are the Federal Trade Commission to which RD owes $8.7 million from a settlement agreement; the printers Quad Graphics and Donnelley who are owed $3.6 million and $1.6 million, respectively; and Simon & Schuster which is owed $614,000.
A group of secured noteholders is providing RD with up to $45 million in new financing to support its operations during the bankruptcy process as part of a $105 million facility that will repay in full its existing bank debt. In a statement, Robert E. Guth, president and CEO of RD said, "The Chapter 11 process, which will facilitate a significant debt reduction, will enable us to continue to redefine our business by focusing our resources on our strong North America publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena."
RD said the Chapter 11 filing is not expected to impact its day-to-day operations and that it will continue to market and publish all of its U.S. publications during this process, as well as its international publications. But, RD noted, it will continue to pursue agreements to sell and license international businesses and expects to finalize some agreements in the coming weeks.
For the fist nine months of 2012, RD had sales of $754 million and an operating loss of $223.4 million, a figure that includes $203 million in impairment charges.
