* Textbook publisher hurt by government cutbacks
* Bank lenders, bondholders would gain control
* Paulson took stake
By Jonathan Stempel
May 21 Houghton Mifflin Harcourt Publishers Inc,
whose textbooks have been a staple in American schoolhouses for
decades, filed for Chapter 11 bankruptcy protection on Monday
after agreeing with creditors to eliminate $3.1 billion of
The "pre-packaged" bankruptcy comes as state and local
governments cut their budgets, reducing demand for textbooks for
students from kindergarten to 12th grade, Houghton Mifflin's
Houghton Mifflin has a 41 percent market share in the K-12
educational material and services sector, Fitch Ratings said.
The Boston-based company and two dozen affiliates filed for
protection in U.S. bankruptcy court in Manhattan, Houghton
Mifflin's second major restructuring in 2-1/2 years.
Houghton Mifflin said its restructuring has support from the
vast majority of its stakeholders, and that it expects to emerge
from Chapter 11 by June 30. Fitch said 90 percent of the
company's senior lenders support the plan.
With a history dating to 1832, Houghton Mifflin said its
products serve 60 million students in 120 countries.
It also publishes the "Curious George" and "Lord of the
Rings" children's book series, and games such as "Where in the
World is Carmen Sandiego?" The company in January agreed to
distribute titles from an Amazon.com Inc publishing
In February 2010, Houghton Mifflin underwent a restructuring
in which it raised $650 million of equity capital. Its investors
include the investment firm Guggenheim Partners and hedge fund
manager John Paulson, whose firm Paulson & Co got a board seat.
Houghton Mifflin's reorganization calls for the conversion
of its bank and bond debt into a 100 percent equity stake in a
reorganized company, saving $250 million in annual cash interest
Trade creditors and unsecured creditors would be paid in
full. Shareholders who back the plan could receive warrants for
up to 5 percent of the equity in a reorganized company.
The company has said it has lined up $500 million in
financing from Citigroup Inc, and hired Blackstone Group
LP and the law firm Paul, Weiss, Rifkind, Wharton &
Garrison to provide financial and restructuring advice.
In its bankruptcy petition, Houghton Mifflin said it had
more than $1 billion of both assets and liabilities.
The case is In re: Houghton Mifflin Harcourt Publishing Co,
U.S. Bankruptcy Court, Southern District of New York, No.