NEW YORK (AdAge.com) -- Lenders are taking ownership of Reader's Digest Association away from the group of investors led by private-equity firm Ripplewood Holdings that bought the company for $2.4 billion in March 2007.
Under a prepackaged Chapter 11 filing, Reader's Digest Association said today, Ripplewood will exit but the company will cut its debt to $550 million from $2.2 billion and receive an infusion of $150 million in new financing.
It's the latest tremor to shake the magazine business during the recession, which has also seen lenders take Maxim and Vibe magazines away from owners, McGraw-Hill put BusinessWeek up for sale, and TV Guide sell for $1.
The hope at Reader's Digest Association, of course, is that the prepackaged Chapter 11 plan will help the company keep going smoothly despite everything. "The company has strong brands and products, a leadership position in many markets around the world and a solid plan for the future," CEO Mary Berner said in a statement Monday. "Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives."
Ms. Berner, a magazine veteran installed by Ripplewood, has reorganized the company around content areas such as food and home, revamped the flagship title while cutting its circulation and sought ways to expand -- such as the creation of Purpose Driven Connection a membership club and quarterly magazine centered on the pastor Rick Warren. She will continue as CEO and keep her seat on the board of directors.
Reader's Digest, the flagship magazine, saw ad pages from January through June fall 7.7% short of their level during that period in 2008, according to the Publishers Information Bureau. That's a much better performance than seen at monthlies as a whole, which lost 28%. But the title isn't the powerhouse it once was.
And the company, now severely burdened with debt as a result of the Ripplewood deal, has struggled with the recession. It laid off 280 of 3,500 employees worldwide early this year as part of a plan to cope. It said as recently as this spring that it had "no plans whatsoever to file Chapter 11." It was, however, already considering ways to restructure its loans.
It's unclear when the Chapter 11 plan revealed today will actually be filed, but it's expected to be within the next 30 days. That's the grace period allowed on a $27 million interest payment due today that the company is not paying.