The Reader”™s Digest Association Inc. in Chappaqua has laid the groundwork for a possible Chapter 11 bankruptcy filing to reduce its $2.2 billion debt burden.
Acting with major creditors, the company announced today it is expected to restructure its finances and will exchange a substantial portion of the company’s $1.6 billion in senior secured debt for equity, which provides for a transfer of ownership of the company to the lender group.
“This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company,” said Mary Berner, president and CEO. “We are gratified to have this support from our secured lender group. The company has strong brands and products, a leadership position in many markets around the world and a solid plan for the future. Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives.”
Subject to court approval, the company said it expected a “vast majority of its suppliers and vendors will recover in full under a Chapter 11 plan.”
A Chapter 11 filing would only apply to the company”™s U.S. businesses.
The company has elected not to make a $27 million interest payment on its 9 percent Senior Subordinated Notes and will use the 30-day grace period to continue discussions with its lender group and other stakeholders.
