Reader’s Digest Association Inc, whose namesake magazine has been a staple of dentists’ offices for generations, said on Monday it planned to file for Chapter 11 bankruptcy for its US businesses as part of a prearranged plan with lenders to cut debt by 75 percent.
The media company, known worldwide for its family magazine filled with general-interest and inspirational stories, has been trying to cut costs since it was bought in 2007 by an investor group led by Ripplewood Holdings LLC.
The bankruptcy would take the form of a prearranged filing, which comes after a company has already reached deals with lenders to reduce debt.
The deal, if approved by a bankruptcy court, would allow Reader’s Digest to slash its debt load to US$550 million, from the current US$2.2 billion.
The arrangement would also allow the company to reduce its annual interest payments on remaining debt to less than US$80 million from about US$145 million, president and CEO Mary Berner said in an interview.
“Our deal has already been negotiated and hammered out with a majority of our creditors,” Berner said.
The arrangement “doesn’t affect our employees, it doesn’t affect the vast majority of vendors, it doesn’t mean we’ll do mass layoffs, it doesn’t mean we’re going to be selling off assets. It’s business as usual.”
The company, based in Pleasantville, New York, has said Reader’s Digest is the largest selling magazine in the world. The company has offices in 45 countries and sells books, magazines, recorded music collections and home videos.
Among other offerings, it also publishes the food magazine Every Day with Rachael Ray.
Ripplewood will have no ownership stake going forward either in the US or internationally.
Under the plan, the company will work with lenders to swap a portion of its US$1.6 billion in senior secured debt for equity, and transfer company ownership to the lender group.
The agreement, which is subject to court approval, also includes a commitment from some members of the senior lender group to provide US$150 million in debtor-in-possession financing, which would help fund operations during the reorganization.
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