The Reader's Digest Association (RDA) said it has agreed with its senior lenders it would be possible for it to enter voluntary Chapter 11 bankruptcy as part of a plan to reduce its debts. Its UK and other international subsidiaries will not be involved in the process.
The senior lenders will effectively take control of the company by converting a large part of the $1.6bn debt they are owed into equity.
Current shareholders, led by Ripplewood Holdings, would lose their entire $600m investment in the company, which they acquired for $2.4bn in November 2006.
The plan is contingent on the agreement of other lenders, who hold a further $600m of the company's current $2.2bn debt.
RDA would emerge from bankruptcy with its total debts reduced by 75% to $550m.
Dow Jones also reported RDA missed a $27m interest payment due today but would use a 30-day grace period to continue discussions with its lenders.
In a statement RDA said the filing was for the US business only and would not have any effect on its international operations in Europe (including the UK), Canada, Latin America, Africa, Asia, and Australia-New Zealand, which were adequately funded to continue to operate "business as usual".
Advertising revenue from RDA's lead title Reader's Digest fell 18.4% last year and is down another 7.2% in the first six months of this year, according to the Publishers Information Bureau.
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