Reader's Digest seeks more tweaks to loan agreement to avoid default

By Susanna Moon

Chicago, Nov. 19 - Reader's Digest Association, Inc. parent RDA Holding Co. is working to further amend its secured term loan based on its updated projections and strategic plan, according to a 10-Q filing with the Securities and Exchange Commission.

The company noted that it cannot assure any agreement will be reached.

The failure to comply with the financial covenants under the facility would constitute an event of default, which would give the lenders the right to accelerate payment of their loans and, in turn, could create an event of default under the company's 2011 unsecured term loan and its senior secured notes, the filing said.

"Based on our relationships and ongoing discussions with our lenders, we believe it is reasonably likely that we would be successful in obtaining such waivers and/or amendments," the company said in the filing.

In exchange for any waivers or changes, the lenders could require consent fees and/or insist on modifications to the agreements for additional restrictions on the company's operations and its ability to respond to future financial or operational challenges, the company noted.

Most recent changes

The company entered into an amendment and waiver on Nov. 9 for the credit agreement covering its $50 million secured term loan, as previously reported.

Wells Fargo Bank, NA is the administrative agent, with Wells Fargo Principal Lending, LLC as issuing lender.

The amendment changed the financial covenant levels in the credit agreement for the fiscal quarter ended Sept. 30 as follows:

• The total leverage ratio was modified to 7.50:1.00 from 6.25:1.00;

• The first-out first-lien leverage ratio was modified to 0.85:1.00 from 0.70:1.00; and

• The cash interest coverage ratio was modified to 1.20:1.00 from 1.50:1.00.

In addition, the changes also updated the variable rate to Libor plus 600 bps and waived the company's requirement to deliver financial statements for the fiscal quarter ended Sept. 30 within 45 days of the end of that quarter, changing the deadline to 50 days of the end of the quarter.

As announced in August, RDA was in compliance with all covenants contained in its debt agreements as of June 30. However, the company said at the time that its ability to comply with covenants contained in the 2012 secured credit facility and its 2011 unsecured term loan depended on operating results and the speed with which the company could execute operational and strategic initiatives and their outcomes.

Reader's Digest, a subsidiary of RDA Holding Co., is a media and direct marketing company based in New York.

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