It seems that no print publication is immune from the wrenching changes in the publishing industry. Look at Reader's Digest. The company said it will likely file for a so-called prearranged Chapter 11 bankruptcy.
The main reason: to pare down the heavy debt load.
Keep in mind that -- back in 2007 -- Reader's Digest went private (the transaction was valued at about $2.8 billion). The private equity sponsor was Ripplewood Holdings. Of course, the deal was struck at the height of the market, when credit was easy.
However, cost-cutting was not enough to deal with the problems at Reader's Digest. So, with a prearranged Chapter 11 filing, the company will be able to engage in an exchange of senior debt for equity -- for a total of $1.6 billion. The upshot is that the lenders will wind up owning Reader's Digest. The senior lenders include Bank of America (NYSE: BAC), JPMorgan (NYSE: JPM) and General Electric's (NYSE: GE) GE Capital.
While this will provide some much-needed help, the fact remains that the publishing industry has a foggy future. In other words, Reader's Digest will need much more than financing engineering to get things back on track.
Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook
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