* Textbook publisher hurt by government cutbacks
* Bank lenders, bondholders would gain control
* Company publishes "Curious George," "Lord of the Rings"
* Paulson, Apollo have stakes in company
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 debt.
The "pre-packaged" bankruptcy would give control of Houghton
Mifflin to its lenders.
It comes as cash-strapped state and local governments defer
or cancel education-related purchases, reducing demand for
textbooks for students from kindergarten to 12th grade.
Traditional book publishers also face pressure from the
online availability of published material, including e-books.
Houghton Mifflin has a 41 percent market share in the K-12
educational material and services sector, and its education
business accounts for about 90 percent of revenue.
The Boston-based company lost $2.18 billion last year,
including a $1.67 billion writedown, as net sales fell 14
percent to $1.3 billion.
Houghton Mifflin and two dozen affiliates filed for
protection in U.S. bankruptcy court in Manhattan.
In a court filing, general counsel William Bayers said the
reorganization has support from 90.3 percent of creditors and 76
percent of equity investors eligible to vote.
Houghton Mifflin expects to emerge from bankruptcy by June
30. The company said it has $2.68 billion of assets and $3.54
billion of liabilities, and employs 3,300 people.
With a history dating to 1832, Houghton Mifflin said its
products serve 60 million students in 120 countries.
The company also publishes the "Curious George" and J.R.R.
Tolkien's "Lord of the Rings" children's book series, and games
such as "Where in the World is Carmen Sandiego?"
Houghton Mifflin also agreed in January to distribute titles
from an Amazon.com Inc publishing unit.
The restructuring is Houghton Mifflin's second in 2-1/2
years. In February 2010, Houghton Mifflin recapitalized its
balance sheet with $650 million of new equity capital. That
restructuring was out-of-court and did not involve a bankruptcy
Its investors include the investment firm Guggenheim
Partners and hedge fund manager John Paulson's firm Paulson &
Co, which each holds a board seat.
Paulson & Co, Apollo Management Holdings LP and Marc Lasry's
distressed debt firm Avenue Capital Group were among members of
a creditor group that negotiated the reorganization.
Houghton Mifflin plans to convert its bank and bond debt
into a 100 percent equity stake in a reorganized company, saving
$250 million in annual cash interest costs.
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 lined up $500 million in financing from
Citigroup Inc. It hired Blackstone Group LP and the
law firm Paul, Weiss, Rifkind, Wharton & Garrison to provide
financial and restructuring advice.
The case is In re: Houghton Mifflin Harcourt Publishing Co,
U.S. Bankruptcy Court, Southern District of New York, No.