BARRY O’CALLAGHAN’S highly-leveraged Education Media and Publishing Group (EMPG) has restructured its balance sheet in a deal that will lighten its debt and interest burden, but will heavily dilute the Cork-born entrepreneur’s equity in the company.
EMPG’s lenders have agreed to reduce its long-term debt by over $1 billion (€705 million). According to a spokesman for the company, EMPG’s total debts stand at $7.1 billion.
In return, the lenders (which include Apollo, BlackRock and Guggenheim Partners) will receive a 45 per cent stake in the company.
This debt-for-equity swap will see Mr O’Callaghan’s stake almost halved from about 38 per cent to 21 per cent, according to the spokesman.
“The old equity realises it’s well under water,” said Mr O’Callaghan, who acknowledged he will give up voting control of the group. “The difficult parts of the equity aren’t being led by some difficult private equity firm or deluded entrepreneur.”
The refinancing averted any risk of a bankruptcy filing and should carry EMPG through a year in which strained state budgets in the United States have prompted falls of up to 30 per cent in school budget spending.
Lawyers have been working on the agreement since a May 27th deadline by which EMPG – which owns book publisher Houghton Mifflin Harcourt (HMH) – had been due to make cash interest payments to second lien lenders.
Under the terms of the new agreement, EMPG’s financial covenants on its debt will be relaxed by approximately 25 per cent.
In addition, its annual interest expense has been reduced by about $100 million.
Mr O’Callaghan said EMPG had secured more than 90 per cent support from lenders, and now had ample liquidity, helped by a further $50 million increase its working capital facility.
In a note to staff yesterday, Mr O’Callaghan said: “Thanks to the support of our stakeholders, we now have a more appropriate capital structure with the underlying liquidity to support our company’s long-term strategic plan and business objectives.
“We could not have accomplished this were it not for the fact that our company is the clear market leader in a long-established industry that, while facing short-term funding challenges, remains an attractive long-term, viable marketplace.”
Earlier this month it emerged that HMH planned to lay off 65 staff in the US due to a decision to outsource its IT services. However, a spokesman last night said that the company was continuing to hire staff for its Dublin office.
In May, international ratings agency Moody’s withdrew its credit ratings for HMH.
Mr O’Callaghan created Boston-based HMH through the reverse takeover of Boston educational and literary publisher Houghton Mifflin by his Irish-based education software firm Riverdeep. The enlarged company later acquired Harcourt, the consumer publishing unit of Reed Elsevier. – Additional reporting Copyright Financial Times Ltd 2009
