More Bad News for Book Publishers

Houghton Mifflin Harcourt has agreed with most of its creditors to eliminate $3.1 billion of debt and enter a prearranged Chapter 11 bankruptcy process, the company announced Friday.

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Education Media and Publishing Group, an Irish private-equity concern, borrowed heavily to finance the acquisitions of Houghton Mifflin in 2006 and Harcourt in 2007, and has since struggled financially under the weight of that debt. The company has also dealt with lagging textbook sales due to drops in educational funding as state and local governments cut back on spending.

The publisher said it plans to restructure through a pre-packaged, court-supervised Chapter 11 bankruptcy, a process that will have no impact on its day to day operations. HMH hopes the restructuring will free it up to pursue opportunities in digital, consumer, and international markets.

The restructuring is likely to be completed by the end of June 2012. The Boston-based publisher said a majority of its senior secured lenders and bondholders agreed to the plan to convert outstanding long-term debt to equity and create a capital structure to support its business objectives.

So far more than 70 percent of the publisher’s senior lenders and bondholders have agreed to the terms of the restructuring plan, which would convert its existing long-term debt to equity, the company said in a statement.

Day-to-day business will continue as usual, Linda K. Zecher said in an e-mail to employees. The company has no plans for layoffs and employees will be paid as usual. Houghton Mifflin Harcourt has more than $135 million in cash on hand to pay for operating costs.

HMH recently struck a deal with Amazon (NASDAQ:AMZN) to license books acquired by Amazon’s new publishing unit in New York that will be distributed under Houghton’s New Harvest imprint beginning this fall.

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