Ripplewood-backed Reader’s Digest Association (RDA) may be taken over by its senior lenders in a restructuring that would reduce the company’s debt from $2.2 billion to $550 million.
RDA said in a statement it has reached a preliminary agreement with its senior secured lenders that would allow the group to convert about $1.6 billion of senior secured debt into equity of the reorganised company, which the lenders would take over.
The senior lenders group consists of JPMorgan, GE Capital, Ares Management, Eaton Vance Investment Managers, Regiment Capital Advisors, Merrill Lynch Capital and Davidson Kempner Advisors.
Ripplewood led an investor group that purchased the company in 2007 for about $2.4 billion, including the assumption of debt. It’s not clear how much equity Ripplewood put into the deal but the firm's equity stake in the company would be wiped out under the restructuring.
The firm, which pulled its representatives from RDA's board of directors, supports the restructuring plan, an RDA spokeswoman said.
RDA elected to miss a $27 million interest payment due Monday and continue negotiating with lenders through a 30-day “grace period” to try to obtain additional support for the restructuring plan. About 60 percent of the lenders were supporting the agreement as of Monday afternoon, and the company needs 66 and two-thirds percent for its plan to be approved in bankruptcy court.
Under the proposed plan, some members of the senior lending group have agreed to provide $150 million in bankruptcy financing that will allow the company to operate through the reorganisation process.
The Chapter 11 filing will only affect the company’s US operations, and not its businesses in Latin America, Europe, Canada, Africa, Asia and New Zealand-Australia, RDA said.
RDA publishes Reader’s Digest, which contains a mix of general interest content. The company, based in Pleasantville, New York, also publishes books and engages in direct mail. The company's operations would not be affected in the restructuring, according to a RDA spokeswoman.
Last year, the company sold its school and youth group fundraising unit QSP for $110 million to magazine and web site publisher Time.
Ripplewood has recently been in the public eye due to its involvement in the race for the buyout of Germany-based Opel, General Motors’ car unit in Europe. Ripplewood affiliated RHJ International has been battling for ownership of the unit with Canadian autoparts supplier Magna, which last week said it had reached an agreement in principle with GM to buy the company. RHJ, however, has said it is still in the running. GM denied it had reached an agreement with any party on the acquisition. German chancellor Angela Merkel has thrown her support behind Magna.