Cengage noteholders outline opposition to disclosure statement, escrow

By Jim Witters

Wilmington, Del., Nov. 18 - Cengage Learning, Inc.'s disclosure statement outlines a Chapter 11 plan that fails to set aside enough money to settle the claims of the debtors' "other unsecured claims," according to a Nov. 18 filing by the second-lien noteholders with the U.S. Bankruptcy Court for the Eastern District of New York.

CSC Trust Co. of Delaware, as successor indenture trustee, brought the insufficiency to the attention of the debtors, but Cengage failed to make the requested changes in its revised plan and disclosure statement, according to the filing.

CSC Trust did not file a formal objection to the disclosure statement, but instead filed a statement of its position.

The disagreement revolves around a proposed $111.9 million escrow account the debtors propose to establish "to fund distributions to creditors other than the first-lien lenders," the filing stated.

The indenture trustee said that amount covers the bare minimum Cengage would owe if the court ruled in the debtors' favor on every dispute, "and the debtors are successful in avoiding liens on the disputed copyrights."

"For the escrow amount to be sufficient, the debtors and the first-lien lenders must prevail on most, if not all, of the disputed issues and other material legal and factual disputes in these cases," the filing stated.

The second-lien trustee asserted that "the disputed unsecured escrow effectively mandates the outcome of the various disputed issues in these cases to the court and, to the extent the court disagrees with the debtors and the first-lien lenders on such issues, the revised plan cannot be confirmed."

A hearing to consider the adequacy of the disclosure statement is scheduled for Nov. 20.

Cengage, a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets, filed for bankruptcy on July 2. The Chapter 11 case number is 13-44106.

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