As reported by several media outlets, including Herald and News, faced with a $465 million debt, the publisher of Reader's Digest, RDA Holding Co., has filed for Chapter 11 bankruptcy protection.
Reader's Digest has been published for 91 years and founded by DeWitt and Lila Wallace. The bankruptcy is largely blamed on the growing trend for people to read from electronic devices as opposed to print publications.
The company went public in 1990. In 2007 Ripplewood Holdings, a private-equity firm, purchased Reader's Digest for an investor group for $1.6 billion. At that time the new investors assumed an approximate $800 million debt.
By 2009 Reader's Digest filed for its first bankruptcy. To blame was a drop in advertiser dollars, and the aforementioned debt the new owners had acquired.
The current bankruptcy lists over $1 billon in both assets and debts. The filing was made in U.S. Bankruptcy Court, White Plains, N.Y. Wells Fargo & Co have agreed to a restructuring agreement that allows $465 million of remaining senior notes to be converted into equity.
RDA expects to reduce its debts by 80 percent – approximately $100 million – by the time they exit bankruptcy.
Luxor Capital Group of New York is owed a $10 million loan and the U.S. Federal Trade Commission is owed $8 million. The two constitute RDA's largest unsecured creditors.
Robert Guth, Reader's Digest's chief executive officer, told reporters, "We have had an ongoing process to simplify and rationalize our international business by licensing our local markets to third parties, to other publishers, to other investors and that has been a big part of our effort to streamline the company and bring in proceeds to bring down debt."
The Reader's Digest website boasts a readership of over 25 million. Included in the 75 magazines published globally are: 9 editions of Reader's Digest, Taste of Home, the Family Handyman and Birds & Blooms.
Guth commented that Reader's Digest "sold more digital editions in December than we did newsstand editions."
Reader's Digest previously sold off Allrecipes.com and Every Day with Rachel Ray, but according to Guth, they didn't have "enough success on that front."
Guth added, "The key message here is that we have a lot of confidence in the future of the business based upon the success of the ongoing operational transformation, but we haven't had as much success with the balance sheet side of it and we need this process to help accelerate that. The much more modest debt level puts us in a position to continue to really execute these plans and push these brands forward well into the future, so it's a very good new lease on life. 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 American publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena."
In a pre-petition the company said that it had reached an understanding with its secured lender, as well as 70 percent of its secured note holders, and that the bankruptcy filing will implement all of the pre-arranged plans to restructure.
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