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paidContent - Reader's Digest Files For Ch 11 Bankruptcy For U.S. Arm

This story was written by Rafat Ali.


This had been brewing for a while: Reader’s Digest company has filed for a pre-arranged Chapter 11 bankruptcy. The company was acquired for $1.6 billion by a consortium of investors, led by PE firm Ripplewood, in 2006. It hired law firm Kirkland & Ellis earlier this year to look at restructuring options. Founded in 1922, RDA was a public company from 1990 through 2007,before it went provate with the deal; the new owners also assumed $776 million in debt. In January, RDA cut 8 percent of its 3,500-member workforce and ordered furloughs across the board.

Under the terms of the deal:
—has reached an agreement in principle with a majority of its senior secured lenders on the terms of a restructuring plan.
—will reduce its debt from $2.2 billion to $500 million.

—the restructurng of debt will result in a transfer of ownership of the company to the lender group.
—The company will not make a $27 million interest payment due today on its 9 percent Senior Subordinated Notes due 2017. Instead, the company is using the 30-day grace period to continue discussions with its lender group for this bankruptcy.
—Among RDAs senior lenders are Bank of America, JP Morgan and GE Capital.
—Commitment from some of its lender group to provide $150 million in new money Debtor-in-Possession (DIP) financing, convertible into exit financing upon emergence. These lenders are JPMorgan Chase, GE Capital, Eaton Vance, Ares, Regiment and Bank of America Merrill Lynch.
—Will apply only to the companys U.S. businesses its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be affected. RDAs International operations are expected to have adequate funding based on continuing operations and access to proceeds from the DIP financing.
—All board members who have served since the March 2007 acquisition, with the exception of CEO Mary Berner, have resigned. The two recently appointed directors also continue to serve on the board.

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By Rafat Ali
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