October 21, 2014

Houghton Mifflin Harcourt Files Chapter 11, To Swap Debt for Equity

Major publishing house Houghton Mifflin Harcourt (HMH) filed for Chapter 11 bankruptcy today in the U.S. Bankruptcy Court for the Southern District of New York. The “pre-packaged” restructuring is expected to be completed by the end of June.

In the court filing, HMH estimated that it owed more than $1 billion in debts (the press release specified $3.1 billion) to between 200 and 999 creditors; several times its estimated assets of $10-$50 million.

The plan, which was originally announced on May 11, convert’s the company’s debt into 100 percent of the reorganized company’s equity, reducing annual interest costs by approximately $250 million. (In addition, HMH has a commitment for $500 million in financing from Citigroup Global Markets Inc.) Existing equity holders whose classes vote in favor of the restructuring plan will receive up to 5 percent of the equity in the reorganized company.

Trade and other unsecured creditors will be paid in full. Among the largest such creditors are logistics, marketing, printing, and paper companies, as well as such familiar names to librarians as Marshal Cavendish International (owed almost $7 million), Global Scholar (owed $4.5 million), Cengage Learning (owed more than $3 million), and Penguin Group (owed about $775,000). All told, the top 20 creditors are owed about $80 million.

HMH said in a statement that employees will “continue receiving their usual pay and benefits,” and Education Week quoted HMH CEO Linda Zecher as saying in an email to staff that there would be no layoffs.

HMH also said that the plan “is supported by the vast majority of our key financial stakeholders.” As of May 11, more than 70 percent of the company’s senior secured lenders and bondholders had reached an agreement with HMH.

According to the Boston Globe, hedge fund Paulson & Co. is the lead investor of a group which also includes Apollo Global Management LLC, BlackRock Inc., Guggenheim Partners LLC, and Avenue Capital Group.

Houghton Mifflin was sold for $1.75 billion to Riverdeep Holdings, an Irish maker of educational software, in 2006; it then acquired the Harcourt Education, Harcourt Trade, and Greenwood-Heinemann divisions of Reed Elsevier for $4 billion in 2007.

Meredith Schwartz About Meredith Schwartz

Meredith Schwartz (mschwartz@mediasourceinc.com) is Senior Editor, News and Features of Library Journal.

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