Bankruptcy time for Reader's Digest
The Pleasantville, N.Y.-based publisher is embarking on a Chapter 11 restructuring process that will allow it to convert some $1.6 billion in debt into equity. RDA says the pre-packaged bankruptcy plan (which only affects its U.S. division, not its international operations) will allow it to continue paying its suppliers and vendors while shrinking its debt load to a far more manageable $550 million*. The company says it will forego a $27 million interest payment due today, taking advantage of a 30-day grace period to hold discussions with its lenders.
"This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company," said RDA chairman Mary Berner in announcing the move. (I should note that Berner was my boss four years ago, back when she was running Fairchild Publications.) "Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives."
It was Berner who headed up the $2.4 billion acquisition of RDA by a consortium led by the private-equity firm Ripplewood Holdings in 2006. Since then, the company's fortunes -- like those of nearly all print publishers -- have taken a turn for the worse. Ad pages in the flagship title, Reader's Digest, were 12.3 percent down in the first half of 2009 from the same period three years earlier -- a relatively modest decline compared to the industry as a whole. (Industry-wide, pages were down 27.9 percent year-over-year in the first half.)
Berner's strategy for turning around RDA involves reasserting the company's bond with its traditional middle-American audience. The New York Times recently reported that Berner was taking the company, which has a publishing partnership with evangelical pastor Rick Warren, in a politically conservative direction, but RDA executives quickly denied that was the case.
*Correction: This originally read "$550 billion." That was a typo.