Education publisher Houghton Mifflin Harcourt (HMH) is seeking to reassure schools that it’s business as usual after filing for Chapter 11 bankruptcy May 28 to wipe out $3.1 billion in debt.
HMH, which publishes software and textbooks used by some 57 million students throughout all 50 U.S. states and 120 countries, said it has reached an agreement with more than 70 percent of its lenders and bondholders on the terms of a financial restructuring plan to convert the company’s outstanding debt into equity. More than 20 HMH affiliates, including Broderbund LLC and Classroom Connect Inc., also entered bankruptcy.
HMH said its plan would eliminate the company’s debt and reduce current annual cash interest costs by approximately $250 million, providing the company with “greater liquidity and financial flexibility as it pursues growth opportunities.”
By filing for Chapter 11 bankruptcy, instead of Chapter 7, which usually implies a company’s immediate exit, it appears that HMH intends to stay in business. While the company is in the bankruptcy process, it can’t be sued by creditors.
HMH insists its restructuring plan will strengthen the company financially.
“This is good news for our company,” said Linda Zecher, president and CEO of HMH, in a video that can be found here. “Our company has enough positive cash flow to continue normal operations. There will be no disruptions.”
On a question-and-answer webpage about the restructuring, HMH assures its stakeholders that the company has “no plans for layoffs or closings as a result of this process” and that it doesn’t “expect any changes in our business relationships with our authors, artists, or customers, other than the opportunity to grow our relationship further. Your contacts at HMH will remain the same, and we will continue to deliver on our commitments as usual.”
According to Bloomberg Businessweek, HMH had roughly $1.29 billion in sales last year, and the company says it plans to borrow as much as $500 million through Citigroup Inc. to complete the bankruptcy process.
Moody’s Investors Service earlier this month cut HMH’s corporate credit grade to the second-lowest rating, reserved for borrowers that “offer very poor financial security.” In March, Moody’s said the company’s capital structure was “unsustainable without a significant rebound in earnings.”
At a time when many publishers are struggling to make the transition from a mostly print-based to a digital market, HMH spokeswoman Bianca Olson said the shift from print to digital played no role in the company’s financial situation. Instead, she attributed HMH’s debt to “multiple acquisitions, coupled with a slower-than-expected economic recovery.”
“Because HMH’s financial restructuring plan is focused only on the company’s current long-term debt, it will not impact day-to-day operations, including all customer-facing functions such as customer service and support, product development, and fulfillment. HMH customers can count on receiving the same quality offerings that they have come to expect from us,” Olson said.
She added: “Because we already have a high level of support from our key stakeholders, we expect to move swiftly and smoothly and complete the [bankruptcy] process by the end of June. In the meantime, our company has more than enough positive cash flow, and our offices are open and serving our customers, employees, business partners, content providers, and suppliers as usual.”
HMH’s many digital products include SkillsTutor, a cloud-based solution for personalized assessment and instruction in math, science, and language arts; DataDirector, an online assessment and data-management system that helps educators assess students’ skills, analyze results, and deliver follow-up support based on a prescribed intervention that is customized to each student’s needs; Pinpoint, a single sign-on platform for delivering curriculum, assessment, analytics, professional development, parent information, and more; Fuse, an iPad-based algebra curriculum; and iNsight, a brand-new platform for creating a safe and positive learning environment.
Susan Bedi, public information officer for California’s Fresno Unified School District, said her district uses many HMH products, including Fuse and a number of the company’s textbook series. In an eMail message to eSchool News, Bedi said HMH reached out to the district “to explain the restructuring process and the fact that it would have no impact on customers.”
“Our relationship with HMH is strong and longstanding, and we expect no impact on our district from this process,” Bedi wrote.
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