Reader's Digest U.S. units file for bankruptcy

By Chelsea Emery

NEW YORK (Reuters) - The U.S. units of media company Reader's Digest Association Inc filed for bankruptcy on Monday, marking a new chapter for the 87-year-old magazine as it carries out a plan to cut its debt and transfer ownership to a group of lenders.

The company, named for its general-interest magazine packed with family-friendly humour and inspirational stories, said earlier this month that it would file for bankruptcy to help cut a debt load of $2.2 billion by 75 percent.

Reader's Digest is the latest in a string of media companies hurt by an economic slowdown that has cut ad spending and hampered companies' abilities to repay debt.

"Advertising is down, circulation is down, there are alternatives like the Internet where people are getting their information," said Richard Mikels, a partner with law firm Mintz Levin. "It's a tougher industry than it used to be."

Reader's Digest, founded in 1922 and headquartered in Pleasantville, New York, does not plan to lay off any employees or sell any units in its restructuring.

The plan calls for Reader's Digest senior lenders to exchange a substantial portion of the company's $1.6 billion in senior secured debt for equity, transferring ownership to the lender group.

The restructuring plan must be approved by a bankruptcy judge.

"One way to deleverage is by turning debt into equity. That will happen more and more throughout the economy over the next several years," said Mikels.