Reader’s Digest files Chapter 11


As previewed last week, Reader’s Digest Association on Monday filed a pre-packaged Chapter 11 petition for bankruptcy reorganization. Its lenders have agreed to provide $150 million in debtor-in-possession financing.

As is customary in Chapter 11 proceedings, Reader’s Digest Association (RDA) filed a number of first day motions to continue normal business operations.

“Our business operations remain solid, with anticipated Fiscal 2009 revenue only down by low single digits, currency neutral, despite the recession. We look forward to emerging with a restructured balance sheet and as a financially stronger organization that is positioned to pursue our growth and transformational initiatives,” said Mary Berner, RDA’s President and Chief Executive Officer.

RDA announced on August 17th that it had reached an agreement in principle with a majority of its senior secured lenders on the terms of a restructuring plan to significantly reduce its debt burden and strengthen the company financially for the future. Under the agreement, RDA’s senior lenders would exchange a substantial portion of the company’s $1.6 billion in senior secured debt for equity, effectively transferring ownership to the lender group. The agreement also establishes the substantive terms of the $550 million in debt that will remain on RDA’s balance sheet upon exit.

The Chapter 11 filing applies only to the RDA’s US businesses – its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be part of the filing.