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Houghton Mifflin Harcourt Publishing Files for Bankruptcy

May 31, 2012

By Dawn McCarty and Phil Milford on May 21, 2012

Houghton Mifflin Harcourt Publishing Co., the publisher of authors from Mark Twain to J.R.R. Tolkien, sought bankruptcy protection to eliminate more than $3 billion in debt.

The company, based in Boston, listed $2.68 billion in assets and $3.53 billion in debt in Chapter 11 documents filed today in U.S. Bankruptcy Court in Manhattan. More than 20 affiliates also entered bankruptcy, including Broderbund LLC and Classroom Connect Inc.

“The global financial crisis over the past several years has negatively affected” Houghton Mifflin’s financial performance, in a business that “depends largely on state and local funding” for the schoolbook market, said William Bayers, company general counsel, in court papers.

He cited “recession-driven decreases” and “purchase deferrals” by the states and a “lack of anticipated federal stimulus support” for “substantial revenue decline.”

The filing comes as traditional print-book publishing faces growing competition from e-books. Sales of adult paperbacks and hardcover books fell 18 percent from 2010 to 2011, according to the Association of American Publishers. Borders Group Inc., the second-largest U.S. bookstore chain, filed for bankruptcy in February 2011.

Unsecured Creditors

Among Houghton Mifflin’s largest unsecured creditors listed in court papers were Chicago-based R.R. Donnelley & Sons Co. (RRD) (RRD) and New York-based Williams Lea Inc., owed more than $20 million each in trade debt.

Houghton said May 11 it received support from more than 70 percent of its lenders to restructure its debt. The company has about $2.85 billion of loans maturing in the next two years, according to data compiled by Bloomberg.

The company, with about $1.29 billion in sales last year, said it plans to borrow as much as $500 million through Citigroup Inc. (C) (C) to complete the bankruptcy process, court papers show.

Under the proposed recovery plan, Houghton’s long-term bank loan and bond debt would convert to all of the equity in the reorganized company, according to a May 11 statement. Existing shareholders would receive warrants for 5 percent of the new stock if they voted in favor of the plan.

Revenue Source

Houghton provides educational products and services to about 60 million students in 120 countries, according to its website. The company also prints and distributes electronic books owned by one of Inc. (AMZN) (AMZN)’s publishing arms, under an agreement announced in January.

The accord allows Amazon, the world’s largest Internet retailer, to market books to people who don’t visit its site and provides Houghton with a new source of revenue as sales decline at brick-and-mortar bookstores.

Moody’s Investors Service in May cut Houghton’s corporate credit grade to Ca, the second-lowest rating and 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.”

Houghton’s origins date to 1832, according to the company. Among its authors are Ralph Waldo Emerson and Jonathan Safran Foer, and the company’s titles include the “Curious George” and “Lord of the Rings” books.

The case is In re Houghton Mifflin Harcourt Publishing Co, 12-bk-12171, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at; Dawn McCarty in Wilmington, Delaware, at

To contact the editor responsible for this story: John Pickering at

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