Reader's Digest Association (RDA), the publisher of the venerable monthly houhold journal the Reader's Digest magazine, is planning to file for pre-arranged bankruptcy protection after it reached agreement on a debt-for-equity restructuring with a majority of its secured lenders.

The investor group led by Ripplewood Holdings that acquired the debt-ridden media for $2.4 billion in 2007, of which $800 million was debt, (See: Investor group to acquire Reader's Digest for $1.6 billion) said that the company's lenders would exchange a substantial portion of the company's $1.6 billion senior secured notes for equity.

The restructuring of debt will result in a transfer of ownership of the company to the lender group, said RDA.

The Chapter 11 bankruptcy filing will apply only to the company's businesses in the US and will not affect its operations in Asia, Canada, Latin America, Europe, Africa and Australia-New Zealand.

Mary Berner, RDA's president and chief executive officer, said the company would 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."

RDA expects to complete the Chapter 11 proceedings 45 to 90 days after it files for bankruptcy and said that it will not make a $27 million interest payment due today on its 9 per cent Senior Subordinated Notes maturing in 2017. Instead, it will use the 30-day grace period to negotiate with its lender group on restructuring.

Some members of the senior lender group will provide $150 million in debtor-in-possession financing, which would help fund its operations during the Chapter 11 process.

All board members who have been on the board since the acquisition in 2007 have resigned. Berner, however will continue.

The Pleasantville, New York-based media company, which has been losing money since 2005, had hired Berner, the previous chief executive of Fairchild Publishing, to turn the company around in 2007.

RDA has reduced annual operating expenses by $100 million over the last two years, and in its restructuring plan, announced in January, the company had cut 8 per cent of its 3,500 workforce.

In the second half of last year, the US edition of Reader's Digest circulation fell to 8.2 million from a peak of nearly 17 million in the 1970s.

It had hired law firm Kirkland & Ellis to look at different restructuring options, including bankruptcy filing.

RDA said it would have $550 million debt on its balance sheet after emerging from Chapter 11, which is 75 per cent reduction from the current $2.2 billion debt.

Reader's Digest was controlled by a charitable foundation set up by the company's founders, DeWitt Wallace and Lila Bell Wallace. It went public in 1990.

RDA became private in 2007, when investor group led by buyout firm Ripplewood Holdings along with J. Rothschild Group, GoldenTree Asset Management, GSO Capital Partners, Merrill Lynch Capital Corporation and Magnetar Capital acquired it for $2.6 billion.

The iconic monthly magazine founded in 1922 is the world's largest-circulation magazine with a worldwide circulation of 21 million copies and over 100 million readers across 50 editions.

RDA is a global multi-brand media and marketing company that educates, entertains and connects audiences around the world. With offices in 44 countries, it markets books, magazines, and music, video and educational products reaching a customer base of 130 million in 78 countries.

It publishes 94 magazines, operates 65 branded websites generating 22 million unique visitors per month, and sells approximately 40 million books, music and video products across the world each year.

Although the Indian operations of the company will not be affected, Readers Digest first started its publication in India in 1954 and had a circulation of 45,000.

The pocketsize magazine is now published in India by Living Media India and had a circulation of over 600,000 copies monthly as on end 2008.