Digest-Size Debt Load

Reader’s Digest is filing for bankruptcy? Why? Such a strong publishing organization, it practically had a license to print money. Well, then again, so did many other print media.

Was it the cost of paper and postage or was it the Internet revolution? Partially, yes. I’d think most would agree the company was overly leveraged:

I remember wondering why it was a good idea to take a struggling company and load it up with leveraged buyout debt. But buyers were there for the debt, at interest rates that were not very high, and the deal was done.

Today Reader’s Digest said it will skip interest payments on a bond issue and file a prepackaged bankruptcy. The deal will give equity to some creditors, and slice debt from $2.2 billion to $550 million. The L.B.O. investors are wiped out, and creditors take large losses. Some creditors have agreed to put more money in. The publication will stay in business.

Add “The Digest” to the modern pantheon of P.E. failures.