Reader's Digest Association, which publishes 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 media group along with its $2.4 billion debt in 2007, (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 debt for equity.

The Chapter 11 bankruptcy filing will apply only to the company's businesses in the US.

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."

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

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.

In its restructuring plan, announced recently, the company had cut 8 per cent of its workforce and had hired legal counsel 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 in debt.

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, including 50 editions of Reader's Digest, the world's largest-circulation magazine, 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.