U.S. Reader's Digest Association files for bankruptcy protection

Reader's Digest Association has filed for bankruptcy protection in the United States and has negotiated agreement in principle for an arrangement to reduce the company's debt to 25 cents on the dollar. According to a story in Folio: the Chapter 11 filing affects only the U.S businesses.

Reader's Digest Association (Canada) LLC, based in Montreal, is managed separately (although it mirrored recent cutbacks experienced across all international divisions).

The entire board of Reader's Digest Association, except for CEO Mary Berner, have resigned. Berner said:

"Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives."

The company needed to do something. It was carrying $2.2 billion debt, now reduced to $550 million (with debt holders exchanging "a substantial portion" of the debt for equity representing majority ownership of the company.) RDA has chosen to skip at $27 million interest payment due today, taking a 30-day grace period to continue discussion about what to do with the $600 million in notes, which are due in 2017. Among the senior lenders are Bank of America, JP Morgan and GE Capital.

In an earlier story, Folio: reported:

In March, RDA hired law firm Kirkland & Ellis and financial adviser Miller Buckfire to "assist the company in staying ahead of the problems in the market by exploring strategic initiatives, including, but not limited to, raising additional capital and easing our debt burden.” At the time, RDA CEO Mary Berner vehemently denied reports that the company might file for bankruptcy protection, saying the hirings help the company “be proactive in this fast-changing environment and not find ourselves at a later date with diminished options.”