Houghton Mifflin inks pre-packaged plan deal with lenders, bondholders

By Caroline Salls

Pittsburgh, May 11 - Houghton Mifflin Harcourt has reached an agreement with more than 70% of its senior secured lenders and bondholders on the terms of a comprehensive financial restructuring plan to convert the company's outstanding long-term debt to equity and create an appropriate capital structure to support its strategic plan and business objectives, according to a news release.

The company said it plans to file a pre-packaged plan of reorganization in the near future that will be implemented through a "prompt, court-supervised Chapter 11 process." The Chapter 11 case will have no impact on the company's day-to-day operations, the release said.

Houghton Mifflin said acceptance of the proposed plan is currently being solicited from its broader lender, bondholder and shareholder constituencies.

If approved by the requisite percentages and implemented as proposed, the company said it will eliminate $3.1 billion of debt and reduce current annual cash interest costs by roughly $250 million, providing Houghton Mifflin with greater liquidity and financial flexibility as it seeks growth opportunities in the digital, consumer and international markets.

"With a more appropriately sized capital structure and greater financial flexibility, along with our world-class brand and innovative digital education solutions, we will be well positioned to accelerate our growth initiatives and expand our digital platform," president and chief executive officer Linda K. Zecher said in the release.

In addition, Houghton Mifflin said it has received a commitment for $500 million in financing from Citigroup Global Markets Inc.

"We are thrilled that our lenders recognize the long-term value of HMH, and are grateful for the support they have shown," Zecher said in the release.

Plan terms

Under terms of the comprehensive financial restructuring plan:

• The company will convert its existing bank and bond debt into 100% of the equity in the reorganized company;

• Trade creditors and other unsecured creditors will be paid in full in the ordinary course;

• If their class votes in favor of the restructuring plan, existing equityholders will receive warrants exercisable for up to 5% of the equity in the reorganized company.

Because of the high level of support obtained from its lenders and bondholders for the plan, Houghton Mifflin said it will likely complete the financial restructuring by the end of June.

The company said its restructuring counsel is Paul, Weiss, Rifkind, Wharton & Garrison LLP and its financial adviser is Blackstone.

Houghton Mifflin is a Boston-based educational publisher in the K-12 market.

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