RSS Feed (xml)
interest magazine that began gracing American homes in 1922 and now
reaches a worldwide audience of 130 million, filed for Chapter 11
bankruptcy protection Monday as it faces falling print circulation in
the Internet age and looming debt payments. Known for its
heart-warming stories about American life as other publications moved
toward edgier fare, the company's flagship Reader's Digest magazine
has seen its US circulation drop from a peak of more than 17 million
in the 1970s to just above 8 million last year. Magnifying the
publishing world's woes is an advertising slump that already has led
to the closing of several high-profile magazines, including Conde
Nast's Portfolio, Domino and Blender. But Reader's Digest CEO Mary
Berner has said that ad pages for the company's US magazines are
down less than 6 per cent through the September editions. The
publications' down- home feel instead of a high reliance on luxury
and high-income tastes has an added attraction to advertisers in a
recession that has hurt much of print media. She noted that the
company had several successful ventures, such as the magazine
Everyday with Rachael Ray and cooking site AllRecipes.com. Berner,
however, cited problems with two underperforming properties the
company agreed to sell last year: Books Are Fun Ltd, a company that
sells books at events and book fairs, and QSP, which assists with
fundraising for schools and youth groups. Still, weakness in ads,
lower circulation and a mountain of debt created a perfect storm that
led to the prearranged bankruptcy filing of the privately held
company. The filing had been expected after the company said last
week it had reached an agreement with a majority of lenders.
Reader's Digest said the prearranged bankruptcy filing, which only
affects US operations, would give lenders a 92.5 per cent ownership
stake in exchange for lowering its indebtedness to $550 million from
$2.2 billion. The filing has gotten the approval of more than 80 per
cent of the company's senior secured lenders, critical for a quicker
exit from bankruptcy protection. The publisher expects to emerge
from bankruptcy protection 45 to 90 days after the filing, which was
made at the US Bankruptcy Court in New York. The company piled on
debt following a $1.6 billion leveraged buyout in 2007 by investors
led by Ripplewood Holdings LLC, a New York private equity firm, to
take Reader's Digest private. In such a transaction, investors
typically borrow heavily to acquire a company, betting that
operations would generate enough cash to cover the debt payments.
But signs of trouble have since emerged. In June, Reader's Digest
magazine cut its circulation guarantee to advertisers to 5.5 million
from 8 million, and lowered its frequency to 10 issues a year from
12. Reader's Digest went public in 1990 and was controlled by a
charitable foundation set up by the company's founders, DeWitt and
Lila Wallace. The company bought out the foundation's shares in
2002. Ripplewood and other investors stepped in five years later.
In the Chapter 11 filing, the company's senior secured lenders have
committed $150 million in new debtor-in-possession financing that can
be converted into exit financing once Reader's Digest leaves
bankruptcy protection. The publisher said the financing should give
it ample liquidity for its restructuring. Its international
operations are expected to run on existing funds from continuing
operations and proceeds from the debtor-in-possession financing. The
company said most of its suppliers will be paid in full under the
bankruptcy plan. All of the company's board members who have served
since Ripplewood's acquisition have resigned, aside from Berner. Two
members who recently joined will continue to serve. Pleasantville,
NY-based Reader's Digest publishes 94 magazines and sells about 40
million books, music and video products each year. Reader's Digest
magazine has 50 editions worldwide, reaching readers in 78 countries.
