Apax’s Cengage files for Chapter 11

The educational publisher, acquired by Apax and OMERS for $7.7bn in 2007, has entered bankruptcy protection to eliminate $4bn of its $5.8bn outstanding debt - just ten days after Apax closed its new buyout fund.

Cengage Learning, an education textbook business owned by Apax Partners, has filed for Chapter 11 bankruptcy protection. 

Bought by the UK-headquartered firm and OMERS Private Equity in 2007 for $7.7 billion, the company would have to refinance $2.1 billion of its outstanding $5.8 billion debt load next year. Now, through an agreement with a group of lenders who hold around $2 billion in first lien debt, it hopes to use the bankruptcy protection to eliminate $4 billion of debt from its balance sheet. 

“The decisive actions we are taking today will reduce our debt and improve our capital structure to support our long-term business strategy of transitioning from traditional print models to digital educational and research materials,” CEO Michael Hansen said in a statement. 

Cengage, previously Thomson Learning, is the second largest educational publisher in the US. Despite efforts to turn around its business – which have included bringing in a new CEO and boosting its digital offering –  the company has posted weak performance in recent years, registering an 18 percent fall in revenue in the 12 months to 31 December 2012. 

The filing comes a few months after it hired adviser Alvarez & Marsal to restructure its debt burden, in recognition that its cash flow position would not allow it to meet its near-term financial obligations. 

Cengage’s top unsecured creditors include the Willington Trust, with around $292 million, the Bank of Oklahoma with $132 million, and Wells Fargo with $64 million, according to a court filing. The company also owes around $1.5 million in tax indemnification to the Thomson Corporation, its former parent.

The news comes 10 days after Apax reached a final close on its latest fund. Launched in 2011, the vehicle eventually closed on $7.5 billion on 21 June, below its $11.9 billion target. 

The bulk of the firm’s equity exposure to Cengage, totalling $757 million, is held in its €11.2 billion Fund VII, according to Apax LP presentation documents seen by PEI

Apax has also become a significant creditor to Cengage in recent months. In a move seen by insiders as an attempt to gain further clout in forthcoming restructurings, the firm has bought $850 million in first lien debt in the group, and $425 million in junior debt, according to a company filing. 

Cengage expects to continue making timely payment to its providers and offering the usual wages and benefits to employees, it said in a statement. 

Apax could not be reached for comment at press time.