Reader’s Digest files for Chapter 11 Bankruptcy on February 17, 2013
Reader’s Digest | RDA Holding Co., publisher of the 91-year-old Reader’s Digest magazine, filed for Chapter 11 bankruptcy on February 17, 2013. RDA is joined by at least 30 affiliates, including The Reader’s Digest Association, Inc. The cases are filed in the Southern District of New York and presumably will be jointly administered before the Honorable Robert D. Drain under Case No. 13-22233.
Robert E. Guth, is the President and Chief Executive Officer of RDA Holding and The Reader’s Digest Association, Inc.
A number of iconic companies have recently entered bankruptcy protection, including Hostess Brands Inc., maker of Twinkies and Wonder Bread, and Eastman Kodak Co., inventor of Kodachrome and the Instamatic camera.
Reader’s Digest, founded by DeWitt and Lila Wallace, went public in 1990. An investor group led by private-equity firm Ripplewood Holdings LLC bought it in 2007 for $1.6 billion and the assumption of about $800 million in debt.
Reader’s Digest 2013 Bankruptcy Background
According to Mr. Guth, these filings mark the Debtors’ second trip through chapter 11. Upon emerging from chapter 11 in early 2010, Reader’s Digest continued to be buffeted by economic downturns, domestically and internationally, and the accelerated shift from traditional print media and marketing to digital media and marketing, severely hampering the Debtors’ ability to thrive. Since the installation of the Debtors’ new management team in 2011, the Debtors have embarked on an ambitious but necessary set of initiatives to transform the Debtors’ core businesses around their iconic brands, reduce overhead and structural complexity, and sell underperforming and non-core businesses.
According to Mr. Guth, in 2012, facing a near-term liquidity crisis, the Debtors and their professionals commenced negotiations with the Debtors’ major stakeholders, including Wells Fargo Bank, N.A. and an ad hoc committee holding more than two-thirds of the Debtors’ senior secured notes. These negotiations culminated in a prenegotiated chapter 11 restructuring agreement that provides the Debtors with an approximately $105 million debtor-in-possession financing and adequate exit financing. The Restructuring Agreement also provides for the Debtors’ prompt emergence from chapter 11. Mr. Guth anticipates that the Debtors will shortly file a chapter 11 reorganization plan with the hope that confirmation of such plan will occur within four months.
By commencing these chapter 11 cases, according to Mr. Guth, the Debtors are seeking to implement the proposed Restructuring Agreement that will substantially enhance their liquidity and maximize revenue growth potential. The Debtors believe that the contemplated consensual reorganization will enable the Debtors to restructure their capital structure and global operations in accordance with the current management’s revised business plan.
RDA is a global media and direct marketing company that educates, entertains and connects consumers around the world with products and services. Taste of Home is the largest circulation food publication and is the leading multi-platform producer of information on food, cooking and entertaining. Other brands include The Family Handyman, Birds & Blooms, Country, and many other enthusiast titles in the United States and internationally. The company provides content in print; online; via digital editions on iPad, Kindle, Kindle Fire, Nook, Sony Reader, Google Nexus, and Zinio; via mobile apps; in books; and via social media outlets such as Facebook and Twitter.
RDA’s principal operations consist of its multi-brand and multi-platform media content and its direct marketing business. Reader’s Digest’s media businesses generate revenue primarily from magazine-related products (e.g., subscription revenue, advertising revenue, and newsstand revenue), as well as from certain non-magazine products, including single and series book sales, music, and video products. RDA’s media products are offered in print and digital formats and are delivered through direct mail, retail, and digital channels.
RDA North America
RDA North America consists of three business units, managed by New York, Milwaukee and Montreal divisions. The New York division manages operations for the “Reader’s Digest,” brand across all platforms in the United States. The Milwaukee division manages operations for the other two largest Reader’s Digest brands “Taste of Home” and “The Family Handyman,” as well as RDA’s enthusiast brands, “Birds and Blooms,” “Country,” “Country Woman,” “Farm & Ranch Living,” and “Reminisce,” across all platforms. The Montreal division manages operations for all Canadian businesses and brands through its Canadian subsidiaries, with some corporate functions connected to the U.S. divisions.
RDA’s international segments, including Europe and APLA, currently operate under a regional structure that includes six primary international regions. The European region is comprised of four sub-regions—the German, Western Europe, Central/Eastern Europe and Russia/Nordic regions—which collectively represent the majority of revenues generated by the international segments. The German region is comprised of Germany, Austria, and Switzerland. The Western Europe region is comprised of France, Belgium, and the Netherlands. The Central/Eastern Europe region is principally comprised of Czech Republic, Poland, Hungary, and Romania. The Russia/Nordic region is principally comprised of Russia, Finland, and Sweden. The APLA region includes Australia, New Zealand, Malaysia, Singapore, and Brazil. With the exception of Malaysia and Singapore, where all products are provided in English, all other products and services are provided in local languages.
Reader’s Digest Capital Structure
As of the Commencement Date, the Debtors had outstanding funded debt obligations in the aggregate amount of approximately $534 million, which amount consists of (a) approximately $59 million in secured borrowings under the 2012 Secured Credit Facility, (b) approximately $464 million in principal amount of Senior Secured Notes, and (c) approximately $10 million in principal amount of borrowing under the 2011 Unsecured Term Loan.
Among the company’s largest unsecured creditors listed in court papers were Luxor Capital Group of New York, listed as administrative agent for a $10 million loan, and the U.S. Federal Trade Commission, with an $8 million claim.
“We have had an ongoing process to simplify and rationalize our international business by licensing our local markets to third parties, to other publishers, to other investors and that has been a big part of our effort to streamline the company and bring in proceeds to bring down debt,” Robert Guth, Reader’s Digest’s chief executive officer, said yesterday in an interview.
The company’s flagship print magazine is read by more than 25 million people, according to its website. The company publishes 75 magazines globally including 49 editions of Reader’s Digest, Taste of Home, the Family Handyman and Birds & Blooms. Reader’s Digest “sold more digital editions in December than we did newsstand editions,” Guth said.
According to court papers, as of January 31, 2013, the following entities directly or indirectly own, control, or hold 5% or more of the voting securities of the Debtor: Alden Global Capital (17.77%), Point Lobos (13.55%), Jefferies High Yield Holdings LLC (9.43%), GoldenTree Asset Management LP (9.22%), General Electric Capital Corporation (8.96%), JP Morgan Chase Bank NA (6.79%), and Goldman Sachs Asset Management LP (5.69%).
Reader’s Digest 2009 Bankruptcy Case
The company also filed for bankruptcy in August 2009, citing a drop in advertising spending and the debt load incurred in its acquisition. On August 24, 2009, RDA Holding, Reader’s Digest, and substantially all of their direct and indirect domestic subsidiaries, filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “2009 Restructuring”). At that time, the principal factors that necessitated the commencement of the 2009 Restructuring included, among other things, burdensome debt obligations, reduced advertising and consumer spending, credit shortages, and increased postal and delivery costs. The goal of the 2009 Restructuring was to implement a prenegotiated plan of reorganization that provided for, among other things, a 75% reduction of RDA’s debt burden while leaving the company’s operations largely intact. RDA emerged from the 2009 chapter 11 in February 2010.
Allrecipies.com / Rachel Ray Rights Sale
The company had some success in the sale of Allrecipes.com “but frankly haven’t had enough success on that front,” Guth said. Last year Reader’s Digest sold Allrecipes and Every Day with Rachel Ray to Meredith Corp. for $175 million.
“The key message here is that we have a lot of confidence in the future of the business based upon the success of the ongoing operational transformation, but we haven’t had as much success with the balance sheet side of it and we need this process to help accelerate that,” Guth said.
“The much more modest debt level puts us in a position to continue to really execute these plans and push these brands forward well into the future, so it’s a very good new lease on life,” he said.
“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 American publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena,” Guth said in a company statement.
Exit Strategy for Reader’s Digest Bankruptcy
Mr. Guth indicated that the Debtors will file the Plan and a related disclosure statement within 25 days of the Commencement Date and will meet the following additional deadlines: (a) Disclosure Statement approved within 75 days of Commencement Date; (b) Bar Date established within 60 days of Commencement Date; (c) Plan confirmed by July 15, 2013; and (d) exit by July 31, 2013.
The Debtors are represented by lead counsel Joseph H. Smolinsky of Weil, Gotshal & Manges LLP, New York.
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