How to Flip-Flop Your Way into Chapter 11
From a memo this winter that Reader's Digest Association CEO Mary Berner sent to employees:
As you may have seen, Bloomberg News Service has widely distributed an article reporting that RDA hired Kirkland & Ellis, a law firm that advises in bankruptcy cases and other forms of restructuring ... From this, starting with one unattributed source supposedly "familiar" with the situation, some news articles jumped to conclusions that RDA is filing for bankruptcy.
I want to assure you that this is not true.
Now it is.
RDA announced today it will enter a voluntary pre-packaged bankruptcy plan . Berner was singing a decidedly different tune.
"This agreement in principle with our lenders follows months of intensive strategic review of our balance sheet issues to financially strengthen the company. Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives."
Folio had reported on Friday that RDA was on the verge of missing a massive debt payment this week. Now that will indeed happen.
The company told FishbowlNY its cash flow fell $15 million short of its annual debt obligations. Yet another case of a company in deep with its bankers -- $2.2 billion worth -- at a time when the core of its business model melts down. Already, the main Reader's Digest was cut back to 10 issues a year.
It's not a question of enough readers, just not enough of the ones advertisers are willing to pay a premium to reach.
Yes, RDA is about much more than the diminutive magazine that's been a staple of waiting rooms the world over, as Rachael Ray and Rick Warren will tell you. But as the Chapter 11 filing confirms, you need a few more tentpoles to stay solvent.