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AUGUST 17, 2009, 11:22 A.M. ETUPDATE: Reader's Digest To File For Bankruptcy
By Kerry Grace Benn and Kate Haywood
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The Reader's Digest Association Inc., which was taken private just over two years ago, said it reached an agreement with its lenders on a restructuring plan that it will likely complete under a prepackaged bankruptcy filing in order to reduce its debt.
The company, which publishes the magazine of the same name and also has marketing operations, also chose not to make a $27 million interest payment due Monday on its 9% senior subordinated notes due 2017. It said it would use the 30-day grace period available to continue discussions with its lenders.
Under the debt-restructuring deal, the company's senior secured lenders will exchange what it said was "a substantial portion" of the company's $1.6 billion in debt for stock.
Earlier this year, Bloomberg News reported Reader's Digest had hired legal counsel to look at restructuring options, including a possible bankruptcy filing.
A steering committee including JPMorgan Chase, GE Capital, Eaton Vance, Ares, Regiment and Bank of America Merrill Lynch will provide $150 million in debtor-in-possession financing that will be convertible into exit financing, according to a person familiar with the situation. The company said it expects the DIP loan will be enough liquidity during the reorganization and beyond. The DIP loan is new money for the company, meaning none of Reader's Digest's existing loans are being rolled into the facility.
Interest on the DIP is 10% over the London interbank offered rate or Libor, with a Libor floor of 3.5%, according to Standard & Poor's LCD unit. This means that under no circumstances will the lenders earn less than 13.5% annual interest. The DIP is expected to be syndicated. The interest is the same as Lear Corp., the maker of automotive seats and interior electronics, is paying on its $500 million DIP.
The company will emerge from bankruptcy with $550 million in debt left on its balance sheet, 75% less than what it has now. The bankruptcy filing will apply only to the company's U.S. businesses.
Reader's Digest said it is still in compliance with its financial covenants.
The firm's bonds haven't traded so far Monday, according to online trading platform MarketAxess, which shows that the 9% notes due 2017 last traded on July 30 at six cents on the dollar.
Reader's Digest term loan on the other hand is a touch higher following Monday's news and is quoted around the high-30 cents on the dollar, according to LCD. That's against versus 36.5/37.5 cents at close of business Friday.
The company was taken private in a Ripplewood Holdings-led leveraged buyout in Feb. 2007. JPMorgan, Citigroup, Merrill Lynch and Royal Bank of Scotland led a $1.61 billion loan backing the takeover, according to LCD data. There was also a $600 million high-yield bond supporting the deal.
-By Kerry Grace Benn and Kate Haywood, Dow Jones Newswires; 212-416-2353;
kerry.benn@dowjones.com
http://online.wsj.com/article/BT-CO-...17-707854.html
Reader's Digest To File For Bankruptcy
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