Cengage CEO Seeking Restructuring, May File Bankrupy

Cengage Learning Inc., the educational publisher owned by Apax Partners LLP, said it’s seeking to negotiate with creditors on a restructuring plan and may need to file bankruptcy as part of its turnaround efforts.

“We will seek to negotiate the terms of a comprehensive restructuring transaction with our key creditor constituents and quickly implement the restructuring plan,” Chief Executive Officer Michael Hansen said today on a conference call after the company reported third-quarter results.

“The Chapter 11 process can be an effective way of achieving a fast and efficient debt restructuring with minimal disruption to the business, particularly where agreement is reached with key financial stakeholders on a plan -- on the outlines of a plan --prior to the filing,” Hansen said.

Cengage, which develops teaching materials for colleges, schools, libraries and corporations, was acquired by a private equity group led by Apax from Thomson Reuters Corp. for $7.75 billion in 2007. The company said March 22 it had drawn down most of its revolving credit lines and hired restructuring adviser Alvarez & Marsal, legal firm Kirkland & Ellis LLP and Lazard Ltd., raising the prospect of bankruptcy.

The company is reviewing “a range of options to strengthen our balance sheet” and no decision has been made yet, Hansen said. Executives didn’t take questions on today’s call. A pre-packaged bankruptcy, where key outcomes are already negotiated with creditors, is being evaluated, Cengage said.

Publisher’s Debt

Apax has been buying up the publisher’s debt at a discount, Hansen said on a February conference call. The London-based buyout firm hasn’t disclosed how much debt it has accumulated. Holding debt gives Apax greater influence in a restructuring.

Cengage had $417.5 million cash as of March 31, and long-term debt of about $5.25 billion, it said in a statement. The company has $525 million in revolving credit, an amount poised to shrink to $300 million July 5 when part of the loans are due. The company disclosed in March it had drawn $518 million from the facilities.

Hansen, who joined the publisher in September, has revamped management and shifted to more digital products and subscriptions to help revive revenue as students increasingly move away from buying new textbooks. The company is cutting costs and ending some incentives that encouraged early ordering, Hansen said today. That decision will hurt fiscal fourth-quarter sales, he said.

Cengage reported an operating loss of $2.77 billion for the three months ended March 31, compared with a loss of $12.3 million a year earlier. Sales rose 4.8 percent to $353.4 million.