Riverdeep bankers to delay selling on €7.15bn in loans

Irish education publisher HM Riverdeep's bankers look set to shelve plans to sell on $7.15 billion in loans extended to the group until sometime next year as a result of the global credit crunch.

It is understood that Credit Suisse, Lehman Brothers and Citigroup have encountered significant difficulties in syndicating the debt by the end of this year, as planned.

The debt relates to Riverdeep's proposed $4 billion cash and stock purchase of Harcourt, the US education division of Reed Elsevier, and a restructuring of the group.

The deal was announced in July before global stock markets went into a tailspin. It came just eight months after Riverdeep, which is led by Irishman Barry O'Callaghan, completed a mammoth $4.95 billion reverse takeover of Boston publisher Houghton Mifflin.

"The odds are that it will be easier to get away in January and February," one informed source said.

"There's a stack of deals on the banks' book at the moment, and it's proving difficult to sell them down. It's no big deal; the banks will simply put the debt on their balance sheet and do it next year."

A spokesperson for Riverdeep said the Harcourt deal would proceed, subject to regulatory approval, regardless of the delay in syndicating its debt.

"It's [Harcourt acquisition] fully underwritten and will close regardless of the volatility in the markets, subject to approval from the Department of Justice," the spokesperson said.

The banks are believed to have originally set a pre-Thanksgiving deadline to close the syndication but failed to drum up sufficient interest.

It has been jointly marketed in Europe and the US.

The debt comprises a six-year, $500 million revolver; a 6½-year, $4.95 billion first-lien term loan; and a seven-year $1.7 billion second-lien mezzanine loan.

On November 13th, Moody's, the ratings agency, confirmed Riverdeep's B3 "Corporate Family" rating with a negative outlook.

Moody's said the negative outlook reflects "the large increase in Riverdeep's debt [which more than doubles] resulting from the proposed financing, uncertainty that Riverdeep will succeed in growing market share, delivering cost-cutting synergies, and achieving positive free cash flow to the degree currently planned by management, and the possibility that market conditions could prevent a meaningful rebound in some of Riverdeep's business lines".

"Additionally, the rating incorporates the fierce competition which Riverdeep faces from established educational publishing rivals, including Pearson and McGraw Hill, and the secular threat which the market faces from increasing electronic substitution".

Under the terms of the Harcourt deal, HM Riverdeep is paying $3.7 billion in cash and €300 million in its own stock to Anglo-Dutch group Reed Elsevier.

Davy is expected to tap its private clients for $235 million in equity to help finance the Harcourt deal, with Mr O'Callaghan set to participate in the cash call.