Two debt restructurings last year still left Houghton Mifflin Harcourt parent company Education and Media Publishing Group (EMPG) straining to sustain their debt obligations and covenants, and reports from Ireland indicate yet another restructuring is in the works that would wipe out equity-holders entirely and turn the company over to its secured lenders.
Investors losing out would include the financial genius behind the $9 billion worth of acquisitions, Barry O’Callaghan, whose interest was reduced to about 20 percent of the company last August. (He also made himself ceo of HMH last year when Tony Lucki wisely retired.) But it also wipes out other Irish investors, who in turn had loans from the Anglo Irish Bank–which is now owned by Irish taxpayers as part of last year’s banking crisis. As of the last restructuring in August 2009, EMPG was reported to have given itself an equity value of $2.66 billion.
Irish elected official George Lee said in a statement: “It has been reported to me that the education materials company Houghton Mifflin Harcourt has failed, and that a number of Irish equity investors have lost significant sums of money as a result. Many of these investors were funded through large loans from Anglo Irish Bank, which is now wholly owned by Irish taxpayers. As a company, Houghton Mifflin Harcourt was a highly leveraged operation and had very significant banking commitments. I understand that the remaining US business is to be transferred to its bond holders. However, it appears that its Irish equity investors will lose all of their investment as a result of this failure. This will have repercussions for Anglo Irish Bank, and possibly other Irish banks, and therefore the Irish taxpayer.”
Of course this final, inevitable restructuring could in a perverse way be the best thing for the company, which appears stable as an ongoing operation absent the unrealistic level of debt taken on to build the conglomerate in the first place. A brief quote from an EMPG statement says “these developments have no adverse effect on our day-to-day operations, on our employees, or on the nature and quality of the service we provide to our customers and business partners.”