Houghton Mifflin Harcourt Parent Avoids Bankruptcy

Posted on August 17, 2009

Education Media & Publishing Group, the corporate parent of Houghton Mifflin, has staved off bankruptcy by refinancing over $1 billion of the company's staggering $7.6 billion. The deal is not making share holders happy: the debt is being turned into equity, which will dilute shareholders' holdings by around 45%. Major shareholder Barry O'Callaghan will no longer own 40% of the company; his share will be closer to 20%. The Financial Times reports:

Mr O'Callaghan, who reversed his Riverdeep educational software company into the publisher of school textbooks and the Curious George children's titles, told the Financial Times he would see his 40 per cent stake cut to "the low 20s" and give up his voting control. "The old equity realises it's well under water," he said. "The difficult parts of the equity aren't being led by some difficult private equity firm or deluded entrepreneur."

The refinancing had averted any risk of a Chapter 11 filing and should carry EMPG through a year in which strained state budgets have prompted falls of up to 30 per cent in school budget spending. Lawyers have been working on the agreement since a May 27 deadline by which EMPG � which competes with Pearson, the educational publisher and owner of the Financial Times � had been due to make cash interest payments to second lien lenders.

Callaghan is the man responsible for the massive debt, which was incurred during his leveraged buyouts of Harcourt and Houghton Mifflin.

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