The publisher of Reader’s Digest, the most popular general interest magazine in the United States, is set to file for bankruptcy protection with a plan to swap a portion of its debt for ownership of the company.
Reader’s Digest Association, owned by the New York private equity firm Ripplewood Holdings since 2007, said it has reached an agreement in principle with a majority of secured lenders to erase a portion of the $1.6 billion they hold in senior secured notes. The lenders will get ownership in return.
The planned filing, which does not include non-American operations, comes amid declining circulation, an industry-wide advertising slump and large debts.
Reader’s Digest, the monthly magazine founded in 1922 as a collection of condensed articles from other publications, has been searching for a niche in the wake of vast changes to the industry since the rise of the internet.
This year’s advertising declines have seen the closing of several high-profile American titles, including Conde Nast’s Portfolio, Domino and Blender.
In June, Reader’s Digest announced it would cut the circulation guarantee it makes to advertisers to 5.5 million from eight million and lower its frequency to ten issues a year from 12.
In the second half of last year, the US edition of Reader’s Digest had a circulation of 8.2 million, two per cent above the guarantee but 12 per cent below a year earlier. The decision to adjust rate base suggests expectations of a further fall.
The company said yesterday it would skip a $27 m interest payment on its nine per cent notes due in 2017 while it looks to build support among lenders for its restructuring plans.