Reader's Digest moves around on planned bankruptcy; Cash, LCDX weaken; West revises amendment

By Sara Rosenberg

New York, Aug. 17 - Reader's Digest Association Inc.'s term loan B bounced around on Monday following the company's announcement that it reached an agreement in principle with a majority of its loan lenders on a restructuring that will be done through a Chapter 11 filing.

Also in the secondary market, Dole Food Co. Inc.'s strip of institutional bank debt was unchanged to lower on the back of the company's recent initial public offering news, and the cash market and the LCDX 12 index were both weaker.

In other happenings, West Corp. came out with some changes to its amendment/extension proposal, including raising pricing and adding call premiums to the extended debt, and pushing out the consent deadline.

Reader's Digest seesaws

Reader's Digest's term loan B was all over the place during the trading session as the company announced that it expects to file for Chapter 11 as part of a restructuring agreement that it is working on with lenders, according to traders.

One trader had the term loan B quoted at 36 bid, 37½ offered, compared to 36½ bid, 38 offered on Friday. This trader said that the highest bid on Monday was 38, whereas the highest bid on Friday was 40.

A second trader had the loan quoted at 35 bid, 37 offered, compared to 37 bid, 37½ offered on Friday. The trader remarked that the paper was as good as 38 bid, 40 offered on Monday morning, but then it came in as the day progressed.

And, a third trader had the loan quoted at 36½ bid, 38½ offered, up from 33½ bid, 35½ offered on Friday afternoon.

On Monday morning, Reader's Digest announced that it reached an agreement in principle with a majority of its senior secured lenders on the terms of a restructuring plan to significantly reduce its debt burden and strengthen it financially.

And, the company will seek further consensus among its lenders and other stakeholders prior to filing for bankruptcy.

Reader's Digest to transfer ownership

Under the planned restructuring, lenders will exchange a substantial portion of Reader's Digest's $1.6 billion in senior secured debt for equity and ownership of the company will be transferred to the lender group.

The arrangement also establishes the substantive terms of the $550 million in debt that will remain on the company's balance sheet upon emergence, a 75% reduction from the current $2.2 billion in debt.

The agreement in principle includes a commitment from certain members of the senior lender group to provide a $150 million new money debtor-in-possession term loan.

The DIP has a term of nine months with one three-month extension.

Reader's Digest DIP pricing

Pricing on Reader's Digest's DIP is Libor plus 1,000 basis points with a 3.5% Libor floor. If the extension option is exercised, pricing will move to Libor plus 1,100 bps. There is also a 200 bps unused commitment fee.

Financial covenants include minimum LTM EBITDA, minimum LTM fixed-charge coverage ratio, maximum capital expenditures and minimum liquidity.

Mandatory prepayments will come from 100% of net cash proceeds from the incurrence of any debt and 100% of all asset sales.

The DIP will be convertible into a three-year exit facility upon the company's emergence from bankruptcy.

Exit fees include 100 bps on the amount repaid, and 300 bps on the amount continued as or converted into the exit facility.

The company will also get a $300 million second-lien term loan as part of its exit financing.

Pricing on the second-lien is Libor plus 550 bps cash plus 650 bps PIK with a 3.5% Libor floor, or Libor plus 1,200 bps cash if LTM EBITDA is greater than $180 million.

Reader's Digest skipping payment

Reader's Digest has decided not to make a $27 million interest payment due on Monday on its 9% senior subordinated notes due 2017.

Instead, the company is using the 30-day grace period available on the interest payment to continue discussions with its lender group and other stakeholders regarding the terms of final documentation and to gain additional support for the consensual deleveraging transaction.

"This agreement in principle with our lenders follows months of intensive strategic review of our balance-sheet issues to financially strengthen the company," said Mary Berner, president and chief executive officer in a news release.

"We are gratified to have this support from our secured lender group. The company has strong brands and products, a leadership position in many markets around the world and a solid plan for the future. Restructuring our debt will enable us to have the financial flexibility to move ahead with our growth and transformational initiatives," Berner added.

Reader's Digest is a Pleasantville, N.Y.-based media and marketing company.

Dole unchanged to down

Dole Food's strip of institutional bank debt was basically unchanged to softer, depending on who was asked, on the back of the company's announcement that it will be doing an initial public offering of common stock with proceeds going to pay down debt and for general corporate purposes, according to traders.

The strip of debt was quoted by one trader at par ½ bid, 101¼ offered, versus par ¼ bid, 101¼ offered on Friday, and by a second trader at par bid, 101 offered, down from par ½ bid, 101¼ offered on Friday.

The loan slid on Friday from around 101¼ bid, 102 offered once the IPO news hit that some investors are assuming that a portion of the bank debt will get paid down at par with proceeds from the offering. The company didn't specifically say that bank debt would be repaid. All that was said was that debt would be paid down and remaining proceeds would go towards general corporate purposes.

Also on Friday, Dole said that it would be doing a $325 million private offering of senior secured notes due 2016 to help redeem its 2010 senior notes. On Monday, word spread that the notes offering was being postponed because of market conditions.

Dole is a Westlake Village, Calif.-based producer, marketer and distributor of fresh fruit and fresh vegetables.

Cash, LCDX trade lower

The cash market in general and the LCDX 12 index both headed lower on Monday as stocks were off and, possibly, there was also some profit taking going on, according to traders.

Cash overall was described by traders as being down about a point to a point and a half.

"Equities sell-off and recent run-up. It's hard not to sell things at these levels. We were due for some pullback," one trader remarked.

Meanwhile, LCDX 12 was quoted wrapped around 911/2, down about two points on the day, traders added.

As for stocks, Nasdaq closed down 54.68 points, or 2.75%, Dow Jones Industrial Average closed down 186.06 points, or 2%, S&P 500 closed down 24.36 points, or 2.43%, and NYSE closed down 185.71 points, or 2.84%.

West modifies amendment

In more loan news, West went out to lenders with some revisions to its amendment proposal, under which the company is looking to extend $700 million of term loan borrowings until 2016 from 2013, according to a market source.

Under the changes, the company increased proposed pricing on the extended term loan to Libor plus 387.5 bps from Libor plus 362.5 bps. Current pricing on the term loan is Libor plus 237.5 bps.

Also, the company is now offering two years of 101 soft call protection on the extended loan, the source said.

And, the amendment now provides for a springing maturity at 91 days prior to the senior notes maturity in 2014 subject to a 2.8 times net secured leverage test.

As a result of the modifications, the consent deadline was postponed until the close of business on Tuesday, the source added.

Deutsche Bank, Wells Fargo and Bank of America are the lead banks on the amendment.

West is an Omaha, Neb.-based provider of outsourced communication services.

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