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Reader’s Digest Parent Files Chapter 11, Executes Restructuring Agreement With Stakeholders

February 19, 2013, 07:56 AM
Filed Under: Bankruptcy

RDA Holding Co., parent company of The Reader's Digest Association, Inc., announced it has reached a consensual agreement on the terms of a financial restructuring with both its secured lender and over 70% of its secured noteholders. The agreement is a key component of the company's ongoing comprehensive transformation plan.

In order to implement the financial restructuring, the company filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. The filing is limited to the U.S. business and is expected to conclude in less than six months. The Company's international operations, including Canada, are not part of the filing.

In conjunction with the Chapter 11 filing, the company executed a Restructuring Support Agreement with its secured lender and its secured noteholders. The agreement will result in, among other things, the company converting approximately $465 million of secured notes to equity, which will strengthen the company by significantly deleveraging its balance sheet. It is currently anticipated that the company will exit Chapter 11 with roughly $100 million of debt, about an 80% reduction in its level of indebtedness.

A group of secured noteholders has agreed to provide the company with up to $45 million in new financing to support its operations during this process as part of a $105 million facility that will repay in full its existing bank debt. The new money financing is open to noteholders who agree to support the restructuring. Management is confident that this new funding will provide the Company with sufficient liquidity to complete the Chapter 11 process. The financing is subject to Bankruptcy Court approval.

"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," said Robert E. Guth , the company's president and chief executive officer. "The complex transformation that we began 18 months ago under the leadership of a new senior management team has resulted in a more streamlined, more focused, and more profitable business, but we have unfortunately been unable to align our debt levels correspondingly. 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 America publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena."

The company has filed a variety of first day motions with the Court that, with Court approval, will allow it to continue to conduct business in the ordinary course without interruption. These include a request for authority to continue paying employees and its network of freelancers on normal schedules as well as the request to honor all of its customer programs, including those for its sweepstakes winners. The company expects to receive approval for these motions shortly. The company's qualified pension plan remains overfunded and will continue to be used to support its retirees. Suppliers and vendors will be paid for goods and services provided to the Company after the February 17, 2013 filing.

Reader's Digest Association (RDA) is a global media and direct marketing company that educates, entertains and connects consumers around the world with products and services from trusted brands.

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