Houghton Mifflin Harcourt in deal to cut $3.1bn debt

Sat, May 12, 2012, 01:00

CREDITORS ARE poised to take control of Houghton Mifflin Harcourt (HMH), the education publishing specialist built up by financier Barry O’Callaghan, in return for writing off its $3.1 billion debt.

Mr O’Callaghan founded the group when his electronic publishing business, Riverdeep, completed a $5 billion reverse takeover of Houghton Mifflin in 2006.

Four years later the group was forced into a debt-for-equity swap that saw lenders owed $7 billion take a majority stake in the business. The deal wiped out €170 million in equity held by Irish investors.

Mr O’Callaghan left the company last year, but remains as chairman of an offshoot, EPMG, which has education publishing businesses in China and India.

US-based HMH, which has offices in Dublin, yesterday announced a second debt-for-shares swap that will see its secured lenders and bondholders take 100 per cent of the shares in a newly re-organised company in return for writing off $3.1 billion in debt. More than 70 per cent of its secured lenders and bondholders have agreed to the swap, more than the two-thirds needed to ensure the US courts endorse the plan and make it legally binding.

Along with the debt write off, the proposal will save HMH $250 million a-year in interest payments. US bank, Citigroup Global Markets has agreed to provide a debt facility of $500 million to the restructured company.

Existing shareholders will receive warrants giving them an option to take a 5 per cent stake in the newly re-organised entity. US hedge fund Paulson, led by billionaire John Paulson, is the biggest shareholder.

HMH will have to go through court-supervised chapter 11 bankruptcy to complete the reorganisation. The company will stay in business while this is happening and told staff it will have no impact on day-to-day trading. It has $135 million in cash to fund its operations.

Cork-born Mr O’Callaghan is a former investment banker who developed a reputation as a deal maker after using Riverdeep as a platform to create HMH.

By 2007 the group was the biggest education publisher in the US, and in 2008, Mr O’Callaghan estimated his personal wealth at over €1 billion. However, the financial collapse in September of that year pulled the rug out from under HMH, which suffered as education spending in the US fell.