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.