Reader’s Digest Association (RDA) has announced a restructuring plan through which a number of its lenders will take a stake in the company in return for reducing the debt. The agreement is expected to lower RDA’s total debt load from $2.2 billion to $550 million.
As part of the agreement in principle, RDA anticipates implementing the restructuring under court supervision through a voluntary, pre-arranged filing under Chapter 11 of the United States Bankruptcy Code, which it expects to complete quickly while operating business as usual. The company has elected not to make a $27 million payment due on some of its debt, instead using the 30-day grace period on the payment to continue negotiations and work on the filing.
“The obligation that dates back to our going private is so steep that it’s consuming all of our cash that it’s making it difficult to grow,” said William Adler, VP of global communications for RDA. “The pre-arranged Chapter 11 filing is designed to go through quickly with minimal disruption. The goal is to have all the parties lined up and all the key parts in advance and to move through it swiftly without impact to the company, our suppliers or our vendors.”
None of RDA’s marketing initiatives will be affected, nor will any of its partners or employees. RDA has made cuts to staff this year already.
“We don’t plan to stop any of our business operations, we don’t plan to close any offices or plants, we don’t plan any mass layoffs,” Adler said. “This is extremely focused on the balance sheet and the long-term debt.”