Houghton Mifflin Harcourt Publishing Files for Bankruptcy

[Jack Getze]

Everybody see this? If you're interested in the financial side of the biz...

By Dawn McCarty and Phil Milford (Bloomberg) May 21, 2012

 

Houghton Mifflin Harcourt Publishing Co., the publisher of authors from Mark Twain to J.R.R. Tolkien, sought bankruptcy protection to eliminate more than $3 billion in debt.

The company, based in Boston, listed $2.68 billion in assets and $3.53 billion in debt in Chapter 11 documents filed today in U.S. Bankruptcy Court in Manhattan. More than 20 affiliates also entered bankruptcy, including Broderbund LLC and Classroom Connect Inc.

“The global financial crisis over the past several years has negatively affected” Houghton Mifflin’s financial performance, in a business that “depends largely on state and local funding” for the schoolbook market, said William Bayers, company general counsel, in court papers.

He cited “recession-driven decreases” and “purchase deferrals” by the states and a “lack of anticipated federal stimulus support” for “substantial revenue decline.”

The filing comes as traditional print-book publishing faces growing competition from e-books. Sales of adult paperbacks and hardcover books fell 18 percent from 2010 to 2011, according to the Association of American Publishers. Borders Group Inc., the second-largest U.S. bookstore chain, filed for bankruptcy in February 2011.

Unsecured Creditors

Among Houghton Mifflin’s largest unsecured creditors listed in court papers were Chicago-based printers R.R. Donnelley & Sons Co. and New York-based Williams Lea Inc., owed more than $20 million each in trade debt.

Houghton said May 11 it received support from more than 70 percent of its lenders to restructure its debt. The company has about $2.85 billion of loans maturing in the next two years, according to data compiled by Bloomberg.

The company, with about $1.29 billion in sales last year, said it plans to borrow as much as $500 million through Citigroup to complete the bankruptcy process, court papers show.

Under the proposed recovery plan, Houghton’s long-term bank loan and bond debt would convert to all of the equity in the reorganized company, according to a May 11 statement. Existing shareholders would receive warrants for 5 percent of the new stock if they voted in favor of the plan.

Revenue Source

Houghton provides educational products and services to about 60 million students in 120 countries, according to its website. The company also prints and distributes electronic books owned by one of Amazon.com Inc. publishing arms, under an agreement announced in January.

The accord allows Amazon, the world’s largest Internet retailer, to market books to people who don’t visit its site and provides Houghton with a new source of revenue as sales decline at brick-and-mortar bookstores.

Moody’s Investors Service in May cut Houghton’s corporate credit grade to Ca, the second-lowest rating and reserved for borrowers that “offer very poor financial security.” In March, Moody’s said the company’s capital structure was “unsustainable without a significant rebound in earnings.”

Houghton’s origins date to 1832, according to the company. Among its authors are Ralph Waldo Emerson and Jonathan Safran Foer, and the company’s titles include the “Curious George” and “Lord of the Rings” books.

The case is In re Houghton Mifflin Harcourt Publishing Co, 12-bk-12171, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at [e-mail]; Dawn McCarty in Wilmington, Delaware, at [e-mail].

[Benjamin Sobieck]

The closing of Borders really hurt publishers who counted on that money. Still, how do you take a nose dive with a captive audience of 60 million students? Sounds like they weren't able to change quick enough over to digital products. Competition from e-books? Shouldn't you BE the competition from e-books?

[Jack Getze]

I think this line explained it, or they could be BSing ....

"...a business that “depends largely on state and local funding” for the schoolbook market..."

[Benjamin Sobieck]

Case closed. Got a little too comfortable, huh?

[I. J. Parker]

Well, this sort of mismanagement will hurt others as well.  No wonder they are furious at Amazon.

[John McFetridge]

My first two novels were bought by Harcourt and sort of even "published" by them, but between the buying and the publishing the company merged with Houghton Mifflin and my editor was laid off. The first book came out as a trade paperback and the second as a hardcover but I don't think they shipped any to bookstores.

I stopped in New York on my way to Bouchercon in Baltimore and visited the offices and was told they wouldn't be putting out a paperback of the second novel. It was like being fired.

I only met a few people working there but they were all very nice and hard working. Oh well.

 

[I. J. Parker]

Writers are always hurt, whatever happens.  It's built into the deals.  Maybe all the contracts need to be rewritten.

[Dana King]

This kind of thing isn't good for writers, but it's hard to feel bad for any of the big publishers anymore.

[Brian Hoffman]

I feel the same way.  But the publishers have fought against change instead of embracing it.

[Jon Loomis]

Not surprising, but somewhat alarming nonetheless.  It'll be interesting to see if H/M can put together a viable business model if/when it emerges from bankruptcy.  I'm not sure what that would even look like, at this point.

As for the textbook thing--my students don't buy the textbooks unless they absolutely have to.  Broke school districts can't buy textbooks, either.  It's not the sure thing it used to be, I don't think.

 

[I. J. Parker]

They got greedy in the textbook business, too.  Instead putting their effort into solid, excellent texts that could be used over and over again, they started making silly changes (like shifting the order of chapters or stories) just so instructors would have to order a new text every year.  And textbook prices are gross. (That's for university textbooks)

In the public schools (taxpayer-supported!) they put out such sloppy books that in Virginia there was uproar recently when an American history text was found to contain so many obvious mistakes that the book had clearly been written by someone unfamiliar with the subject and had not been edited by anyone.

[Stacy]

I feel sorry for their authors and how this will affect them.