Reader's Digest eyes bankruptcy

NEW YORK - The publisher of Reader's Digest, the country's most popular general-interest magazine, said yesterday it would file for Chapter 11 protection with a plan to swap a portion of its debt for ownership of the company.

Reader's Digest Association Inc., which also markets books and publishes dozens of other magazines and Web sites, said it had reached an agreement in principle with a majority of lenders to erase a portion of $1.6 billion in senior secured notes. The lenders will get ownership in return.

Reader's Digest CEO Mary Berner insisted that the company's U.S. magazines remained strong, with the number of ad pages down less than 6 percent through the September issues. She said Reader's Digest titles relied less on luxury brands and high-income tastes, giving them an added appeal in a recession that has clobbered much of the print-media industry.

"Our brands are home and heartland," she said in an interview. "Our brands have a very, very Midwestern sensibility - a back-to-basics sensibility. Reader's Digest has actually done quite well."

She said some additions for the company, including the magazine Everyday With Rachael Ray and the cooking site AllRecipes.com, had succeeded as well.

Instead, Berner blamed two underperforming properties the company agreed to sell last year: Books Are Fun Ltd., a company that sells books at events and book fairs, and QSP, which assists with fund-raising for schools and youth groups.

Even so, Reader's Digest, founded in 1922 as a collection of condensed articles from other publications, has been searching for a new niche as the Internet upends the magazine industry's traditional business models.

In June, the magazine announced it would cut the circulation guarantee it makes to advertisers to 5.5 million from 8 million, and lower its frequency to 10 issues a year from 12.

In the second half of last year, the U.S. edition of Reader's Digest had circulation of 8.2 million, down from a peak of roughly 17 million in the 1970s.

The planned bankruptcy filing, which does not include operations outside the United States, marks the latest stage in a long evolution for the company.

Reader's Digest went public in 1990 and was initially controlled by a charitable foundation set up by the company's founders, DeWitt and Lila Wallace. The company bought out the foundation's shares in 2002.

Ripplewood Holdings L.L.C., a New York private equity firm, led a consortium of investors in a $1.6 billion buyout that took the company private in 2007. Those investors include GoldenTree Asset Management, GSO Capital Partners, Merrill Lynch Capital Corp., J. Rothschild Group, and Magnetar Capital.