RDA Holding Co., publisher of the 91-year-old Reader's Digest magazine, has filed for bankruptcy protection to cut $465 million in debt and focus on North American operations as consumers shift from print to electronic media.
The company is the latest in a line of iconic businesses to have recently sought court protection from creditors, after Hostess Brands Inc., maker of Twinkies and Wonder Bread, and Eastman Kodak Co., inventor of Kodachrome and the Instamatic camera. It's also the latest sign of struggle for traditional media companies that were once unstoppable juggernauts. Time Inc., most recently, was revealed to be the subject of sales discussions by Time Warner, which wants to focus on higher-growth businesses than magazine publishing.
And it is the second bankruptcy filing for Reader's Digest in less than five years.
Reader's Digest, founded by DeWitt and Lila Wallace, went public in 1990. An investor group led by private-equity firm Ripplewood Holdings LLC bought it in 2007 for $1.6 billion and the assumption of about $800 million in debt. The company also filed for bankruptcy in August 2009, citing a drop in advertising spending and the debt load incurred in its acquisition.
The company listed assets and debt of more than $1 billion each in Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in White Plains, N.Y. Under a restructuring agreement supported by Wells Fargo & Co., $465 million of remaining senior notes will all convert to equity. The company expects to have about $100 million in debt when it exits Chapter 11, about an 80% reduction.
Among the company's largest unsecured creditors listed in court papers were Luxor Capital Group of New York, listed as administrative agent for a $10 million loan, and the U.S. Federal Trade Commission, with an $8 million claim.
"We have had an ongoing process to simplify and rationalize our international business by licensing our local markets to third parties, to other publishers, to other investors and that has been a big part of our effort to streamline the company and bring in proceeds to bring down debt," Robert Guth, Reader's Digest's CEO, said in an interview.
The company's flagship print magazine is read by more than 25 million people, according to its website. The company publishes 75 magazines globally including 49 editions of Reader's Digest, Taste of Home, the Family Handyman and Birds & Blooms. Reader's Digest "sold more digital editions in December than we did newsstand editions," Mr. Guth said.
The company had some success in the sale of Allrecipes.com "but frankly haven't had enough success on that front," Mr. Guth said. Last year Reader's Digest sold Allrecipes and Every Day with Rachel Ray to Meredith Corp. for $175 million.
"The key message here is that we have a lot of confidence in the future of the business based upon the success of the ongoing operational transformation, but we haven't had as much success with the balance sheet side of it and we need this process to help accelerate that," Mr. Guth said.
"The much more modest debt level puts us in a position to continue to really execute these plans and push these brands forward well into the future, so it's a very good new lease on life," he said.
The company said it reached a pre-petition accord with its secured lender and more than 70% of its secured note holders. The bankruptcy was filed to implement the pre-arranged restructuring.
"The Chapter 11 process, which will facilitate a significant debt reduction, will enable us to continue to redefine our business by focusing our resources on our strong North American publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena," Mr. Guth said in a company statement.
Hostess, previously known as Interstate Bakeries Corp., left an earlier bankruptcy in 2009 under the control of Ripplewood and lenders. The company, based in Irving, Texas, entered bankruptcy again in January 2012 after changes in American diets curbed sales as ingredient costs and labor expenses climbed.
Kodak, based in Rochester, New York, filed for bankruptcy in January 2012, and CEO Antonio Perez has been selling businesses to shrink the company and fund its shift into commercial printing and packaging. RDA's international operations, including Canada, are not part of the filing, according to court papers.
~ Bloomberg News ~