The death touch of private equity in the media has claimed another victim.

The US parent of Reader’s Digest, which was taken private two years ago for more than $US2 billion, has gone bust in a move to slash debt taken on in a high-priced top of the market private equity buyout.

Reader’s Digest Association Inc, publisher of the widely-read Reader’s Digest magazine, said overnight it was filing for Chapter 11 bankruptcy for its US businesses to cut its debt load.

The statement said the company was looking to cut debt from $US2.2 billion to $US500 million. Debtor-in-possession finance has been arranged for the sum of $US150 million to keep the business going while the debt negotiations are finished.

Reader’s Digest Association joins the likes of The Tribune Co and RH Donnelly as media victims of the US credit crunch and recession as ad revenues slumped.

The media company, known worldwide for its family-friendly namesake magazine, been trying to slash costs and boost growth since it was taken private in 2007 by an investor group led by Ripplewood Holdings in a deal worth a high $US2.4 billion.

Operations elsewhere in the world, including Australia and New Zealand, aren’t affected by the filing.

The company said bankruptcy would help facilitate an agreement with lenders to exchange a portion of its $US1.6 billion in senior secured debt for equity, and transfer company ownership to the lender group.

The company has offices in 44 countries, marketing books, magazines, educational products, recorded music collections and home video products. It also publishes food magazine Every Day and more than 90 other magazines.

Ad revenues fell 18.4% from the Reader’s Digest magazine in 2008 and were down another 7% in the first six months of this year.

Group revenues fell 2% this year, but falling cash flows meant the company struggled to make a $US27 million interest payment, that was due yesterday and won’t be paid now the Chapter 11 process is being triggered.

The approaching bankruptcy means that the investors in the Ripplewood buyout have done the $US600 million they invested in the buyout and the banks who financed the obviously over priced deal with $US2.2 billion in debt, have gained control of the company. The company lowers its interest bill from $US140 million a year to around $US80 million, despite paying interest rates on the new facility in the teens, according to some reports.

Private Equity isn’t emerging from the crunch with any credit: the biggest failure of all, the collapse of The Tribune Co was a private buyout led by Chicago billionaire, Sam Zell.

Another private equity deal, the buyout of the Minneapolis Star Tribune failed in January when it collapsed under high debt and a sharp decline in advertising revenues. It’s now the 10th largest paper in the US.

In Australia private equity has stuffed the buyout of PBL Media and the deal which saw the Seven Media Group formed between KKR of the US and Kerry Stokes Seven Network, has no value.