Add Reader’s Digest to the long list of traditional media companies struggling to climb their way out of a mountain of debt while ad revenue plummets.
After laying off nearly 300 employees in January 2009, today the company announced it had exchanged $1.6 billion of debt for equity in the company, leaving it with $550 million in debt remaining on its balance sheet. Ownership in the company will be transferred to the participating lenders.
In addition, the company said it would likely enter Chapter 11 bankruptcy proceedings in the United States, which will enable it to operate while it negotiates with its remaining debt holders. The company elected not to make a $27 million interest payment due today, opting for a 30-day grace period while it continues discussions with lenders.
The deal also calls for the lender group to provide the company with $150 million in Debt-for-Possession financing, which will provide it with enough liquidity to operate through the further re-organisation efforts. The company said it would seek to negotiate further restructuring with its remaining lenders during the proceedings and expected the majority of its vendors to recover in full.
Private equity firm Ripplewood Holdings bought Reader’s Digest for about $2.4 billion in 2007, another example of a private takeout now saddled by debt as traditional advertising struggles to maintain historical growth rates.
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