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Reader’s Digest Files for Bankruptcy, Again

Michael J. de la Merced
Tuesday, 19 Feb 2013 | 2:03 AM ET

Executives at Reader's Digest must be hoping that the magazine's second trip to bankruptcy court in under four years will be its last.

The magazine's parent, RDA Holding, filed for Chapter 11 protection late on Sunday in another effort to cut down the debt that has plagued the pocket-size publication for years. The company is hoping to convert about $465 million of its debt into equity held by its creditors.

In a court filing, Reader's Digest said it held about $1.1 billion in assets and just under $1.2 billion in debt. It has provisionally lined up about $105 million in financing to keep it afloat during the Chapter 11 case.

This week's filing is the latest effort by the 91-year-old publisher, whose magazine once resided on many American coffee tables, to fix itself in a difficult economic environment.

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"After considering a wide range of alternatives, we believe this course of action will most effectively enable us to maintain our momentum in transforming the business and allow us to capitalize on the growing strength and presence of our outstanding brands and products," Robert E. Guth, the company's chief executive, said in a statement.

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Reader's Digest last filed for bankruptcy in 2009, emerging a year later under the control of lenders like JPMorgan Chase.

That reorganization substantially cut the publisher's debt, and afterward the company worked to further shrink its footprint. It jettisoned nonessential publications in a series of deals, including the $180 million sale of Allrecipes.com and the $4.3 million sale of Every Day With Rachael Ray, both to the Meredith Corporation.

Most of the money from those transactions went to pay down a still significant debt burden. But the company remained pressured by what it described in a court filing as steep declines that still bedevil the media industry. Last year, the publisher began negotiating with its lenders, including Wells Fargo, about amending some of its debt obligations. That process eventually led to a "pre-negotiated agreement" with creditors, which will be put into effect by the bankruptcy filing.

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This time, Reader's Digest is hoping to spend even less time in court. Mr. Guth said in a court filing that the publisher aims to emerge from bankruptcy protection in about four months.

The company's biggest unsecured creditors include firms represented by Luxor Capital. The Federal Trade Commission also contends that it is owed $8.8 million in a settlement claim.

Reader's Digest is being advised by Evercore Partners and the law firm Weil, Gotshal & Manges.

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