The Reader's Digest Association closed on $950 million in new credit facilities, led by Goldman Sachs and J.P. Morgan, after bringing in more than 80 other lenders, including mutual funds and insurance companies. Reader's Digest is purchasing Reiman Publications for $760 million. In addition to the acquisition, the financing will also pay for $100 million of Class B share repurchases in connection with a pending recapitalization, as well as the restructuring of existing borrowings, noted Michael Geltzeiler, senior v.p. and cfo of Reader's Digest.
Investor reaction to the credit, which comprises five and six-year term loans, was very strong. "This oversubscription was a factor in the ability to arrange very favorable terms," said Geltzeiler. The interest spread is in the range of 21/ 4% over LIBOR to 21/ 2% over LIBOR. Another appealing factor, he said, was the assigned credit ratings. Moody's Investors Service gave a Baa3 investment-grade rating and Standard & Poor's assigned the highest non-investment grade rating.
Commenting on the decision and advantages of tapping the bank market, Geltzeiler said, "Based on current market conditions, it was more economically attractive to borrow in the syndicated loan market than to issue public debt." He commented that based on expected cash flows, the company will be able to repay the debt in a shorter period of time than the likely term of any public debt offering. "We will be permitted to repay the loan financing at any time without significant penalty," he added. He declined to comment on the selection process for the lead banks, and which other banks signed up, but Geltzeiler said both Goldman and J.P. Morgan have long-standing relationships with the company.