Reader's Digest bankruptcy plan includes trading ownership stake to lenders for debt

NEW YORK - The publisher of Reader's Digest, the country's most popular general interest magazine, said Monday it will 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 websites, said it has reached 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.

Already, this year's advertising declines have prompted the shuttering of several high-profile magazines, including Conde Nast's Portfolio, Domino and Blender.

Reader's Digest CEO Mary Berner insisted that the company's U.S. magazines remain strong, with the number of ad pages down less than 6 percent through the September editions. She said Reader's Digest titles rely 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. Our brands have a very, very Midwestern sensibility -- a back-to-basics sensibility," she said in an interview. "Reader's Digest has actually done quite well."

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

Searching for a new niche

Even so, Reader's Digest, the iconic monthly magazine 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.

Foreign operations excluded

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 publishing company bought out the foundation's shares in 2002.

Through the foundation, 10 million shares of Reader's Digest common stock went in 1990 to Macalester College in St. Paul, dramatically increasing its endowment.

These days, according to Macalester's director of communications, Amy Phenix, the college no longer owns any Reader's Digest stock.