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Reader's Digest to file for bankruptcy in the US
18.08.09 | Philip Jones
Reader's Digest Association (RDA) is to file for bankruptcy in the US as part of a restructuring plan to "significantly reduce its debt burden and strengthen the company financially for the future". The company said its operations elsewhere, including the UK, would be unaffected by the decision, and stressed in a separate message to international suppliers that the "company is NOT going out of business anywhere around the world".
In March the publisher hired Kirkland & Ellis as legal advisors to evaluate restructuring options, including a potential bankruptcy. RDA said it now expects to enter into a voluntary pre-arranged filing under Chapter 11 of the United States Bankruptcy Code, which effectively sees its lenders take-over the company, exchanging a substantial portion of the company’s $1.6bn in senior secured debt for equity, with remaining debt of $550m. Ripplewood Holdings, which led a consortium buy-out of the firm in 2007 for $2.6bn, will no longer have a stake in the business, with those directors appointed after the buyout now having resigned from RDA's board.
The lenders are also providing the firm with $150m in new money, which the company expects will ensure sufficient liquidity during the reorganisation process and beyond. RDA said its international operations were expected to have adequate funding based on their own continuing operations as well as access to this additional financing. It added that the "vast majority" of its [US-based] suppliers and vendors would recover in full their debts under the Chapter 11 plan.
Mary Berner, who is retaining her position as RDA’s president and chief executive, said the company would continue to operate normally throughout the restructuring process. She said: "This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company. We are gratified to have this support from our secured lender group. The company has strong brands and products, a leadership position in many markets around the world and a solid plan for the future. Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives."
In its separate message to international suppliers, RDA said: "As always, we expect to continue publishing all of our titles, including digital offerings, and to providing the same quality services, without interruption."
The move is being seen as yet another blow for established brand-names in the face of the new economy and rise of the internet. RDA dates its beginnings back to 1921, but has struggled since the buyout. According to the Guardian, the announcement led some to predict that one of the world's most famous brands risks being crushed by the same recessionary forces that have gutted the US newspaper industry and in the UK forced the closure of Woolworths.