The Reader’s Digest Association said Sunday that it filed for Chapter 11 in U.S. Bankruptcy Court in White Plains, N.Y. – its second bankruptcy filing in less than four years – in a debt-for-equity swap reorganization.
The restructuring has the support of both the company’s secured lenders and an ad hoc committee of senior secured noteholders, comprising GoldenTree Asset Management, Empyrean Capital, and Apollo Management, which hold roughly 70% of the company’s $464 million of senior secured notes that were put in place when Reader’s Digest last exited bankruptcy in early 2010.
The restructuring would convert the secured notes to 100% of the equity of the new company, Reader’s Digest said.
Those notes (L+650 with a 3% LIBOR floor), due 2017, last traded in a round lot Feb. 1 at 40, according to traded data, while odd lots have since changed hands as high as 50.
In addition to the secured notes, RDA’s $534 million in prepetition debt includes a $59.26 million secured credit facility and a $10 million unsecured term loan from Luxor Capital Group and Point Lobos Capital.
The noteholders are providing the company with a $105 million DIP facility, according to a declaration filed in bankruptcy court by Reader’s Digest president and CEO Robert Guth in connection with the Chapter 11 filing. The DIP refinances the roughly $60 million of the company’s prepetition secured credit facility at L+500 with a 3% LIBOR floor, and has $45 million in new money at L+950 with a 1.5% LIBOR floor. The DIP matures on Oct. 31.
The company plans to seek interim access to $11 million of the new money, court documents say.
Under the proposed restructuring plan, upon emergence, the refinancing portion of the DIP would convert to a first out, priority exit term loan, while the new money portion of the DIP would convert to a second out, first priority term loan in an amount equal to the new money DIP outstanding at emergence. Both facilities would be pari passu.
The first out exit term loan would be priced at L+600 with a 3% LIBOR floor, while borrowings under the second out facility would be at L+1,100 with a 1.5% LIBOR floor, court documents show.
The Chapter 11 filing comes after a failed sales effort of the company as a whole, according to sources, though Reader’s Digest did successfully sell off Weekly Reader and Allrecipes.com businesses last year for $3.6 million and $175 million, respectively.
More deals could be on the way.
The company hired FTI Capital Advisors in 2012 as its financial advisor to sell or license the regional components of the company’s international operations, or the businesses as a whole, Guth’s declaration said, adding that Reader’s Digest “received preliminary proposals for most regions, which reflect a mix of upfront cash and royalty income.”
Noting that the company sold its Spain and Portugal businesses on July 31, 2012, Guth said that Reader’s Digest was “currently in negotiations for the sale and licensing of certain international markets, and is considering other alternative dispositions for certain international markets.”
In Sunday’s announcement, the company said it “expects to finalize certain agreements in the coming weeks.”
The Chapter 11 filing only covers Reader’s Digest U.S. businesses.
The company had previously hired Morgan Stanley and Evercore Partners to explore dispositions or a sale, according to sources. Moelis & Co. is advising the ad hoc committee of noteholders.
Under the terms of its restructuring support agreement, Reader’s Digest must file a reorganization plan and disclosure statement within 25 days of the petition date, win confirmation of the plan by July 15, and exit from Chapter 11 by July 31.
According to court documents, Alden Global Capital holds a 17.77% stake in the company, while Point Lobos holds a 13.55% stake in the company. Its other large equity holders include Jefferies High Yield Holdings LLC (9.43%), GoldenTree Asset Management LP (9.22%), General Electric Capital Corp. (8.96%), JP Morgan Chase Bank NA (6.79%), and Goldman Sachs Asset Management LP (5.69%). – Staff reports