Houghton Mifflin Harcourt secures $650 million equity investment, agrees to recapitalization

By Caroline Salls

Pittsburgh, Feb. 22 - Houghton Mifflin Harcourt Publishing Co. said leading institutional investors have committed to invest $650 million of new equity capital in the company, and the company has reached an agreement on a recapitalization that strengthens its balance sheet, significantly reduces its debt and provides for the substantial new equity investment and greater liquidity for growth.

According to a company news release, the transaction is expected to be completed on March 9.

As a result of the $650 million equity investment combined with the current senior lenders' conversion of about 60% of their secured debt to equity, Houghton Mifflin Harcourt said it will have the strongest capital structure in its history and the financial flexibility to continue to build the world's leading education company.

This development, coupled with previous changes in the capital structure, will reduce annual interest by more than 75%, the release said.

"With this important development, HMH will have successfully completed a comprehensive balance sheet deleveraging that places it on the strongest financial footing in the company's history and positions it for continued success," chief executive officer Barry O'Callaghan said in the release.

"Thanks to the overwhelming support from our investor base, which sees unparalleled value in our underlying business and our future prospects, we now have greater financial flexibility and freedom with a vastly improved capital structure."

Chief financial officer Michael Muldowney said in the release, "We are extremely pleased to have received the overwhelming support from HMH's stakeholders. Their level of support is truly unique and unprecedented, having obtained 100% of their votes.

"Upon completion in a few weeks, this transaction represents one of the largest balance sheet restructurings of its kind."

Restructuring terms

Highlights of the restructuring include:

• Senior lenders will convert more than $2 billion of secured debt into equity;

• All of the company's nearly $2.1 billion of mezzanine level secured debt will be exchanged for equity and warrants to purchase additional equity;

• The company will receive a $650 million investment of new equity capital from a deep, institutionalized investor base; and

• The company's total annual interest expense will be reduced by more than 75%.

Innovation fund

As a part of its strategic business plan, Houghton Mifflin Harcourt also announced the creation of a $100 million innovation fund to take advantage of its technological strength and develop the next generation of educational products and solutions.

The company said it will use the investment internally to take advantage of its vast industry resources and heritage of innovation, while also partnering with external sources to positively impact the educational landscape for the greatest number of students.

The funds will be available for distribution over the next two years.

The company's financial advisers are Perella Weinberg Partners and Goldman Sachs & Co.

Houghton Mifflin is a Boston-based education company.

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