RDA, which has a total global magazine circulation of 34m and produces approximately 40 books, music and video products annually, has reached an agreement in principle with holders of approximately 60% of its outstanding secured debt in regards to a pre-packaged restructuring plan that would slash its debt from $2.2bn (£1.3bn) to $550m.

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

"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."

The US-based publisher of Reader's Digest made its intentions public yesterday (17 August) when it elected not to make the $27m interest payment due on its Senior Subordinated Notes, due in 2017.

RDA, which signed the world's first $1bn (£608m) BPO deal with Williams Lea in 2007, said it would use the 30-day grace period on the $27m payment to gain additional support for its restructuring plan.

The company said it expected to implement the restructuring under court supervision through a voluntary pre-arranged filing under Chapter 11 of the US bankruptcy code.

In addition to the debt-for-equity swap, certain members of the senior lenders group have agreed to provide RDA with $150m in new money Debtor in Possession (DIP) financing, convertible into exit financing on emergence.

It is not yet known how the deal will affect suppliers, although RDA claimed that "the vast majority of its suppliers and vendors will recover in full under a Chapter 11 plan".

The Chapter 11 filing will only apply to RDA's US businesses and will not affect its operations in Africa, Asia, Australia, Canada, Europe, Latin America and New Zealand.