Reader's Digest is in the process of negotiating a covenant change on its credit facility, said a company spokesman. Reader's Digest acquired Reiman Publications for $760 million in cash in the fourth quarter of fiscal 2002 and the Pleasantville, N.Y.-based company financed the deal with bank debt. J.P. Morgan and Goldman Sachs lead the loan that includes a $600 million "B" piece. Debt levels reached as high as $950 million, said the spokesman.
The credit facility includes a covenant stating that Reader's Digest must maintain a debt-to-EBITDA ratio of four times, but at the end of the third quarter of fiscal year, the company's debt-to-EBITDA ratio was five times due to a charge against earnings, he explained. Reader's Digest is exceeding payment schedules and debt requirements, but is seeking covenant relief from its lenders, he noted.