Academic software and services company Cengage Learning last year filed for Chapter 11 Bankruptcy protection on July 2, 2013 to restructure its $5.8 billion debt load. This week, the company announced a deal with its major creditors and stakeholders and a reorganization plan that executives say will mark the beginning of a path out of bankruptcy and back to financial health.
The plan stands to wipe away upwards of $4 billion of the company’s outstanding debt while allowing it to continue serving its customers. The plan represents a modification of an earlier reorganization plan, and has the support of a majority of Cengage’s creditors and its primary owners, reflecting a settlement between creditors and stakeholders that was negotiated by U.S. Bankruptcy Court judge Robert D. Drain.
Details of the differences between the two deals were not available at press time, but Cengage senior vice president for corporate affairs, Josef Blumenfeld said that the main difference between the two deals is that more creditors are in agreement on this one. “A lot of stakeholders have come into alignment,” Blumenfeld told Library Journal. The five-year reorganization plan, he continued, offers a way for Cengage to stay profitable and creditors to share in those profits.
Under the agreement, Cengage will be freed up to raise as much as $2 billion in exit financing. First lien, secured lenders will come out of the deal with a majority stake in the restructured company, while unsecured creditors will be repaid from a $225 million pool of cash and stock in the new company. As to precisely what those repayments will look like and how many cents on the dollar creditors can expect to recover, Blumenfeld told LJ it was too early to say.
In a statement, Cengage Learning CEO Michael Hansen said the deal “will reduce our debt and improve our capital structure to support our long-term business strategy of transitioning from traditional print models to digital educational and research materials.” Blumenfeld said the company’s new San Francisco offices, which opened just this week, were a sign that the company is devoted to recruiting top tech talent as it move toward producing more and more digital content.
Originally called Thomson Learning, Cengage was spun off and purchased by private equity firm Apax Partners and Canadian pension fund OMERS during Thomson Corporation’s 2007 merger with Reuters. In July 2013, Hansen attributed the bankruptcy to that purchase, saying “the reason there was a problem is that our owner, Apax, significantly overpaid six years ago, and therefore put too much debt on the business.” The next few years saw the company take advantage of low interest rates to buy up a number of new businesses, including the college publishing arm of Harcourt Mifflin and news search engine HighBeam Research in 2008 and the school publishing arm of National Geographic in 2011.
The U.S. Bankruptcy Court for New York’s Eastern District, which is overseeing the bankruptcy filing, has yet to approve the reorganization plan. A confirmation hearing for the plan is set for February 24, 2014.
Meanwhile, the company is continuing to pay staff and vendors on time, and subsidiaries like Gale are continuing to launch new initiatives. For Cengage staff, Blumenfeld reports that there are “absolutely no plans for layoffs,” pointing to the dozens of open positions in the company’s Boston office as evidence that Cengage, which has not laid off staff since the initial bankruptcy filing is looking to hire staff, not shed employees.