Reader's Digest to file for bankruptcy protection

The filing for bankruptcy protection by Reader's Digest Association (RDA), the company said in a statement, is aimed at reducing its debt burden by 75 per cent and to strengthen its future financial position.

RDA, a global multi-brand media and marketing company based in the US, has offices in 44 countries and sells books, magazines, music, video and educational products reaching a customer base of 130 million in 78 countries.

It publishes 94 magazines, including 50 editions of Reader's Digest, the world's largest-circulated magazine and sells approximately 40 million books, music and video products across the world each year.

The company said it has reached an in-principle agreement with its lenders to reduce its debt from USD 2.2 billion to USD 550 million and its 'Debt-for-Equity Restructuring Plan' is supported by a majority of the lenders.

The restructuring agreement provides that the company's senior secured lenders will exchange a substantial portion of the company's USD 1.6 billion in senior secured debt for equity and provide for a transfer of ownership of the company to the lender group.

As part of the agreement, RDA anticipates implementing the restructuring under court supervision through a voluntary pre-arranged bankruptcy filing under Chapter 11 of the United States Bankruptcy Code, which it expects to complete on an expedited basis while operating business as usual.

"The Chapter 11 filing will apply only to the company's US businesses...its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be affected. RDA's international operations are expected to have adequate funding based on continuing operations and access to proceeds from the DIP (debtor in possession) financing," the company said.

Earlier in March 2009, Indian Software exporter HCL Technologies had announced a seven-year IT operations and management engagement with RDA.

As part of the engagement, HCL Technologies would provide application development and infrastructure support across the application stack of Oracle, open technologies, main frame, infrastructure support for network, security, storage, end user computing and data centres.

In a separate statement HCL said the latest developments at its end do not affect its relationship and engagement with RDA.

"HCL is at the very core of our global operations, and we value the relationship today and going forward," RDA Senior Vice President IT, Global Operations and Business Redesign Albert Perruzza said.

"Our underlying business operations are strong, and we are undertaking this initiative with the banks so we can significantly reduce our debt and free up cash for use in building our business. Our creditors are supportive and are working with us to ensure a smooth process with no disruptions to business operations," Perruzza added.

RDA 's business operations remain strong, with anticipated fiscal 2009 revenue declines in the low single digits, currency neutral, despite the global recession.

RDA's President and Chief Executive Officer Mary Berner, said the company would continue to operate normally throughout the restructuring process.

"This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company," she said.