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S&P places Reader's Digest on negative credit watch

by Richard Morgan  |  Published August 1, 2012 at 9:18 AM
Every-Day-with-Rachael-Ray.jpgStandard & Poor's Ratings Services announced late Tuesday, July 31, that it has placed its ratings on Reader's Digest Association Inc., including the publisher and direct marketer's CCC+ corporate credit rating, on CreditWatch with negative implications.

The credit-rating agency said its CreditWatch listing reflected concerns that "declining global economic fundamentals" would strain the New York-based company's liquidity. And any meaningful decline in liquidity could then serve what S&P called "a key short-term catalyst that would contribute to a payment default."

S&P also noted that RDA sales, adjusted for discontinued operations and fresh start accounting, fell 11.3% in the first calendar quarter. Moreover, as RDA failed to reduce costs at the same pace as the sales decline, negative covenant Ebitda increased to $37.7 million from $16.2 million.

As a result, S&P said, cash balances have become the primary source of liquidity in that RDA no longer has a revolving credit facility. Those balances, after the subtraction of $72.3 million in cash held by RDA's foreign subsidiaries, ended the first quarter at a mere $81.6 million.

The 90-year-old institution, which emerged from Chapter 11 protection in February 2010, had its post-bankruptcy board ousted in April 2011 by a group of hedge funds. The management regime installed by those funds soon committed itself to concentrating on RDA's North American publishing assets and international direct marketing operations.

The re-focusing has already resulted in such divestitures as Allrecipes.com, Every Day with Rachael Ray, Weekly Reader and, most recently, RDA's Lifestyle and Entertainment Direct group.
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Tags: Allrecipes.com | Chapter 11 | Every Day with Rachael Ray | Lifestyle and Entertainment Direct | Reader's Digest Association Inc. | Standard & Poor's Ratings Services | Weekly Reader

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