Reader's Digest plans to file for bankruptcy to trim its debt

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

Reader's Digest Association, which also markets books and publishes dozens of other magazines and websites, said it has 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.

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, though, that the company's U.S. magazines remain strong, with the number of ad pages down less than 6% 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.

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

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.