Money Crunch: RDA Close To Missing Interest Payment

cracked piggy bank

The Reader's Digest Association is close to missing an interest payment on its $2.2 billion debt, according to unnamed sources cited by Folio:. This does not necessarily mean that lenders will declare RDA in default, or that RDA will be forced to declare bankruptcy -- but it does put RDA in an iffy high-profile club: Media companies that are unable to service massive debts assumed in transactions to take them private before the credit crunch of 2008-2009.

While RDA refused to comment on the possibility of a missed payment, the series of events follows a familiar progression. After hiring financial consultants specializing in distressed companies, outsourcing IT operations, closing the Spanish-language Selecciones and implementing widespread layoffs earlier this year, RDA still finds itself coming up short, as ad revenues tumble and lenders shut down potential lines of credit. Now it may be forced to play the odds, betting that lenders will be willing to accommodate the company by renegotiating payment schedules. But this could just get RDA in more trouble, as future interest payments will likely readjust to a higher level.

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A number of other big media companies that went private or acquired other companies in highly leveraged transactions are now paying the price for previous profligacy.

In the world of magazines, Quadrangle Capital Partners bought Maxim from Dennis Publishing in 2007, but lost control of the struggling young men's magazine to one of its main creditors, Cerberus Capital Management, in July of this year.

The Tribune Co., which assumed $8.5 billion in debt to go private in 2007, was forced to declare bankruptcy in 2008; now it appears that creditors are planning to wrest control of the company from Sam Zell, who engineered the deal to transform it into an employee-owned company.

Likewise, the Journal Register Co., owner of a chain of local newspapers, was handed over to creditors earlier this year. The Minneapolis Star Tribune was purchased by McClatchy for $1.2 billion in 1998 and sold again in 2006 for just $530 million to Avista Capital Partners -- which recently divested itself of the bankrupt newspaper for no compensation at all. Rumors have circulated that Clear Channel Communications, which went private last year in a $22 billion deal, may be forced into bankruptcy by creditors in a stratagem to get the company's assets cheaply.

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