Indigestion: Reader's Digest Files For Chapter 11

Readers Digest/BankruptAfter missing a scheduled debt payment, the Reader's Digest Association filed for Chapter 11 bankruptcy protection on Monday, saying it would seek to reduce its debt from about $2.2 billion to about $550 million through negotiations with creditors.

RDA is just the latest in a series of big publishers to be forced into bankruptcy after overambitious mergers and acquisitions during the credit bubble earlier this decade.

Most of RDA's debt was assumed during the $2.8 billion deal to take the company private, engineered by Ripplewood Holdings two years ago. RDA failed to make a $27 million payment on $1.6 billion of senior secured debt on Monday, and announced it was in negotiations with creditors in preparation for a Chapter 11 filing.

According to the broad outlines of the bankruptcy reorganization being discussed, most of the senior secured debt would be dissolved in exchange for equity in the company.

advertisement

advertisement

In a statement about the "pre-arranged" Chapter 11 filing, RDA said its overseas operations were not included in the bankruptcy proceedings. It also said it had obtained $150 million for temporary financing.

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. Ad revenues have tumbled and lenders have shut down potential lines of credit.

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.

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.

Next story loading loading..