Reader's Digest is the latest print company to join a growing group of publishing companies that are seeking bankruptcy protection. In September, the Journal Register Co., which owns a chain of newspapers, sought bankruptcy protection for a second time to sell its assets.
Other publishing companies that have sought bankruptcy protection include Houghton Mifflin Harcourt Publishing Co. (May 2012), Tribune Co. (December 2008) and Philadelphia Newspaper LLC (February 2009).
RDA Holding Co. Inc., which owns Reader's Digest, along with Taste of Home and The Family Handyman, emerged from its last bankruptcy case in early 2010, according to court documents. After the case, the publisher continued to be negatively affected by economic downturns and the shift from print to digital media.
Under the debtor's current plan, it will convert about $465 million of debt to equity and reduce its debt burden by 80 percent. RDA is hoping to confirm a reorganization plan within the next four months and exit from bankruptcy in six months.
Wells Fargo Bank NA and an committee holding more than two-thirds of the media giant's senior secured notes will provide Reader's Digest with $105 million in debtor-in-possession financing, which has to be approved by a bankruptcy court.
RDA plans to win confirmation of the Chapter 11 plan by July 15 and exit bankruptcy by July 31, under the terms of its restructuring agreement.
When the debtor filed its latest bankruptcy case, it had $534 million in debt, according to court papers. The company's reorganization plan didn't account for the steep declines in the media industry over the past few years, RDA said in court papers. Not only that, it has been divesting assets and noncore businesses since 2011 as a means of paying off debt.
RDA sold Allrecipes in early 2012 and the Rachel Ray brand in 2011, for $180 million and $4.3 million, respectively. Both assets were sold to Meredith Corp. (NYSE: MDP). Meanwhile, Meredith continues its hunt for targets, reportedly in discussions with Time Warner Inc. (NYSE: TWX) to buy most of its magazine division, including popular titles such as Time, Fortune, Sports Illustrated and People.
According to court documents, Alden Global Capital is among RDA's largest equity holders with a 17.77 percent stake in the publisher. The others include Point Lobos Capital with a 13.55 percent stake, Jefferies High Yield Holdings LLC (9.43 percent), GoldenTree Asset Management (9.22 percent), GE Capital Corp. (8.96 percent), JPMorgan Chase Bank NA (6.79 percent), and Goldman Sachs Asset Management LP (5.69 percent).
Unsecured creditors include the Federal Trade Commission of Washington ($8.75 million), Williams Lea of New York ($5.97 million), HCL Technologies Ltd. ($4.36 million), Quad/Graphics Inc. ($3.58 million) and RR Donnelley Receivables Inc. ($1.61 million).
Law firm Weil Gotshal & Manges LLP is the debtor counsel, while investment bank Evercore Group LLC is providing financial advisory services.