April 20, 2018

Cengage May Declare Bankruptcy

Major academic content, software, and services company Cengage Learning is considering filing for bankruptcy relief, the company’s CEO, Michael Hansen, said on a call reporting third quarter financial results. Those results state bluntly:

“On March 20, 2013, we borrowed $430 million, virtually the entire remaining available amount under our revolving credit facilities. […]If we are unable to refinance or extend our 2013 revolving credit facility, we may not have sufficient liquidity to repay such indebtedness. In addition, we may determine not to repay such indebtedness at its maturity to ensure that we have sufficient liquidity to fund our operations. […] There can be no assurance that any of our attempts to refinance our indebtedness will be successful […] any of the forgoing alternatives may individually, or in aggregate, have material adverse effects on our business and therefore raises substantial doubt about the Company’s ability to continue as a going concern.”

While the company was in compliance with all its covenants as of March 31, it expects to be out of compliance by June 30.

Cengage is attempting to negotiate an out of court restructuring or, failing that, a pre-negotiated bankruptcy. “The Chapter 11 process can be an effective way of achieving a fast and efficient debt restructuring with minimal disruption to the business, particularly where agreement is reached with key financial stakeholders on a plan–on the outlines of a plan–prior to the filing,” Hansen said, according to Businessweek. However, he added that no decision has been made yet.

Hansen, who joined the company less than a year ago, said in his prepared remarks (available in full on INFOdocket.com) that the company’s strategy for recovery includes increasing product innovation, driving incremental growth in global research and English Language Teaching, “Go To Market Excellence” (including customer care and consultative selling), and targeted cost reductions. This joins the company’s existing goals of improving the performance of existing products, refocusing and accelerating MindTap (digital learning suite) product development, refining its digital roadmap, and implementing key performance indicators  across the organization.

The company’s recent endeavors include a deal with the Smithsonian Institution, expanding its partnership with OCLC, unifying its digital humanities content into a single platform called Artemis, and participation in a pilot project with MOOC (massive open online course) provider Coursera.

“In light of our ongoing review of potential restructuring options we will not be conducting media interviews on the subject at this time,” Cengage spokesperson Kristina Massari told LJ. “Per CEO Michael Hansen’s prepared remarks, we are confident that whatever path we take with respect to our capital structure, it will not impact the quality and reliability of our product offerings and our high level of service.”

Cengage was acquired from Thomson Reuters in 2007 for $7.75 billion by a private equity group led by Apax Partners LLP. Apax bought about $800 million of the company’s debt over the past year at a discount, according to DowJones. Being one of the company’s largest creditors would give Apax greater influence over the restructuring. According to the Wall Street Journal, other investment firms which have bought Cengage debt include Avenue Capital Group LLC and Apollo Global Management LLC.

Troubles began at Cengage at least as early as last November, according to the Financial Times, when the company reported 22 per cent fall in revenues, at a time when the higher ed market as a whole only saw a seven percent drop. In response, Standard & Poor’s lowered the company’s credit rating and said its outlook was negative. At that time, however, CFO Dean Durbin said, “I don’t think that we are moving toward a restructuring.” Last July, the company was criticized for focusing on an IPO despite troubled results.

Meredith Schwartz About Meredith Schwartz

Meredith Schwartz (mschwartz@mediasourceinc.com) is Executive Editor of Library Journal.

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  1. It’s tough out there but Cengage is known for its sticktoitiveness. I really think they will be the General Motors of the Education Publishing business. They need to get rid of some of the failing brands and focus on a ‘fleet’ of great educational services and content.

  2. Tom Pat Emerson says:

    Well, when you overcharge for material that is easily available through Wikipedia, what do you expect?

  3. Arlen Kimmelman says:

    How is Cengage connected to Gale? to Thompson? Are these ‘brands’ also affected?

  4. Have been a bookseller ordering from since they came into existence(bookseller for over 30 years)-
    just tried to order $25000 worth of books – was quoted a price on 5/9 and today 5/15 when I went to order prices were greatly inflated to the point I would loose money supplying the books!
    They have tried to sell directly to my customers by giving them the same discount as they do to me as a re-seller
    They clearly have tried to ride with Amazon wave to their detriment-we were getting better prices from Amazon than buying direct.
    Amazon has put a lot of booksellers out of business and now its the publishers turn!

    • Manzahalem says:

      If there is anything worse than “loosing” money I don’t know what it is! ; )

  5. Pete Parcell says:

    Cengage Learning just laid off almost 300 longtime sales, sales management, and editorial people through two reorganizations within the last year. Some of this was done after new CEO Hansen came in and recruited some senior execs from rival educational publishing rival, Pearson. Morale at company is very low, and many employees that are still there cannot figure out which way the company is headed or what vision the new management team has. Part of the problem is that Cengage, unlike Pearson and McGraw-Hill, has no company working learning management system; all of their technology relies on help through many third party vendors, which, they have to pay for and, which results in higher costs on the their products. Bankruptcy is ineveitable, and many believe a collision course with Apollo, who purchased McGraw-Hill Education, seems inevitable.

  6. Stephanie says:

    I don’t know what is causing the Cengage bankruptcy, but my library is luke-warm towards their products. Providing online reference is great–but the company digitized many of their print reference sources rather than creating a database that gets continually updated. This makes the information too old for our patrons to really benefit from.

  7. Cengage’s “custom books” are used in a way that may seem to maximize their profits, but may have not worked as they planned. These Custom ISBNs are unique to a school, but their content is not. Thus the book has minimal resale value. As a result students are not buying the books due to the high prices. They are likely on the wrong place on the price/demand curve.

    The Cheap Textbook

  8. Cengage had warned that if it was unable to refinance or extend its 2014 loan it may not have sufficient liquidity to finance its operations.