Cengage Reorganization Settlement Cuts $4 Billion in Debt

Cengage Learning Inc., the college textbook publisher in bankruptcy, reached a deal with lenders and other creditors to reorganize and eliminate more than $4 billion of its $5.8 billion in funded debt.

All litigation with stakeholders “got resolved this weekend in a global settlement,” Jonathan Henes, a lawyer for Cengage, told U.S. Bankruptcy Judge Elizabeth Stong at a hearing today in Brooklyn, New York. Cengage announced the agreement earlier today. It still requires court approval.

Apax Partners LLP and Omers Capital Partners bought Cengage in 2007 from Thomson Reuters Corp. for $7.75 billion in a deal partly funded with $5.6 billion in borrowings. Cengage, based in Stamford, Connecticut, filed for Chapter 11 bankruptcy in July as debt-payment deadlines loomed and sales declined.

Parties to the settlement include holders of a super-majority of Cengage’s first-lien, second-lien and unsecured debt, its primary equity holder and the official creditors’ committee. Cengage said their support will allow the company file a new plan and get it confirmed in March.

First-lien lenders will get most of the equity in the reorganized company. Second-lien and unsecured creditors will share $225 million in cash or stock, based on total enterprise value for the company of $3.6 billion, Cengage said. The accord also allows the company to obtain $1.75 billion to $2 billion in exit financing.

Trustee Objections

Cengage had postponed several hearings where it planned to seek the exit financing after drawing objections from the U.S. Trustee, an arm of the Justice Department that oversees bankruptcies, and a trustee for holders of 12 percent notes.

The U.S. Trustee had opposed a request to keep the financing terms secret while the noteholders’ trustee had said the financing would “steamroll” unsecured creditors.

The company had said it might miss its March target for leaving bankruptcy if the loan wasn’t syndicated by Jan. 15. The loan’s arrangers include Credit Suisse Securities LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Morgan Stanley Senior Funding Inc. and KKR Capital Markets LLC, according to court papers.

Henes told Stong today that the settlement will let Cengage exit court protection by March 31. The accord was reached through mediation overseen by U.S. Bankruptcy Judge Robert Drain.

The case is In re Cengage Learning Inc., 13-bk-44106, U.S. Bankruptcy Court, Eastern District of New York (Brooklyn)

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