Board replaced, but CEO Berner stays on.
There were rumblings for months that the company might be forced to do this, and now it’s a reality.
The Reader’s Digest Association, home to the 87-year-old Reader’s Digest – the “world’s largest circulation magazine” — and Everyday with Rachael Ray, announced today that it has reached an agreement with its lenders to reduce its debt from $2.2 billion to $550 million, and will file for Chapter 11 bankruptcy protection.
The Pleasantville, New York-based company had a $27 million interest payment due today to its lenders, but RDA said it will not make that payment and instead exercise a 30-day grace period to “continue discussions with its lender group and other stakeholders.”
As part of the agreement, RDA will implement a restructuring plan.
Mary Berner, RDA president and chief executive officer, said the company will “continue to operate normally” throughout the restructuring process.
“This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company," Berner said in a statement. “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."
Ripplewood Holdings led a consortium of investors to buy RDA for $2.4 billion in 2007.
All of the members of the company's board of directors which have served since the transaction — with the exception of Berner — have resigned.
In March, RDA hired law firm Kirkland & Ellis to "assist the company in staying ahead of the problems in the market by exploring strategic initiatives, including, but not limited to, raising additional capital and easing our debt burden.” Those strategic initiatives, according to one report, included bankruptcy protection.
At the time, Berner scoffed at the possibility of a bankruptcy filing, calling it “speculation.”
“I want to assure you that this is not true,” Berner wrote in a memo to employees. "What it means is that we're making sure we're prepared, and that we have the best plans and the best advice so we can be proactive in this fast-changing environment and not find ourselves at a later date with diminished options."