RDA committee questions valuation, objects to proposed distribution

By Caroline Salls

Pittsburgh, April 22 - RDA Holding Co.'s official committee of unsecured creditors objected to the disclosure statement for the company's plan of reorganization, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The committee also asked the court to adjourn the April 25 statement hearing for about four weeks so the creditor group can complete due diligence and work with RDA to prepare a confirmable plan.

The committee said RDA is proposing a distribution to general unsecured creditors of a share of up to $500,000, an estimated recovery of less than 0.1%, "but the distribution depends on numerous factors that are inadequately explained or justified."

"The disclosure statement provides vague and self-serving statements regarding the value of the debtors' unencumbered foreign stock that cannot be reconciled with the actual facts and circumstances of these cases," the objection said.

Contrary to RDA's claims, the committee said it believes the court has already approved a sale that included unencumbered foreign stock, "producing distributable value to unsecured creditors well in excess of $500,000."

In addition, the committee said the company's senior noteholders are using the Chapter 11 cases to convert their debt to equity as quickly as possible while leaving almost nothing behind for general unsecured creditors.

"The committee does not intend to let the senior noteholders employ these strong-handed tactics and essentially steal the company," the objection said.

Valuation view

The committee said it is forming its own view on valuation and expects that a proper valuation analysis will entitle general unsecured creditors to a significantly greater recovery.

Preliminarily, the committee said it believes that the total enterprise value of the RDA debtors is well in excess of the company's asserted $245 million to $365 million, meaning that a $245 million senior noteholder deficiency claim is overstated and there is significantly more than $500,000 from unencumbered assets that should be distributable to general unsecured creditors.

The committee said it is also investigating several pre-bankruptcy transactions, which may generate additional distributable value for general unsecured creditors from cause of action proceeds.

Possible claims

Specifically, the creditor group said it believes that there may be actionable claims related to various financing and sale transactions that occurred after the RDA debtors' emergence from their previous bankruptcy.

"Indeed, had the debtors taken a more conservative approach following their 2010 exit from Chapter 11, it is possible that this bankruptcy filing may have been prevented," the committee said.

As an example, the committee said it is investigating why the debtors completed a $43.3 million share repurchase in February 2011, which may have then led to a liquidity crisis.

The committee said this appears to have required the RDA debtors "to saddle themselves with additional secured debt provided by existing equityholders" in August 2011 that included mandatory repayment mechanisms and a $5 million early repayment penalty.

The committee said the debtors were required to repay the shareholder loan with the $5 million penalty seven months later upon the sale of one of their best performing assets in the previous Chapter 11 cases.

"Even if the debtors' actions turn out to be nothing more than bad business judgments, they should be disclosed so that creditors have a complete picture of the circumstances leading to the Chapter 11 cases," the objection said.

Broad releases

The committee said RDA is proposing a plan with broad sweeping releases, including releases for current and former directors, some of which were replaced right after the 2011 share repurchase.

According to the objection, those releases make it difficult, if not impossible, to prosecute causes of action for the benefit of general unsecured creditors.

Also, the committee said the restructuring support agreement between the RDA debtors and some senior noteholders expressly precludes the creation and funding of a litigation trust as a further road block to recoveries from causes of action.

RDA is the parent of Reader's Digest Association, Inc., a media and direct marketing company based in New York. The company filed for bankruptcy on Feb. 17 under Chapter 11 case number 13-22233.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.