July 15, 2013
By Kyle Olson
Cengage Learning, an education company with a remarkable $5.8 billion debt burden, filed for Chapter 11 bankruptcy this week, according to a report from the New York Times.
Sources say the Connecticut-based company took on a significant amount of debt because of the prevailing low interest rates, but an inability to repay the burdensome loans led it to filing for debt relief.
According to reports, the company has already agreed to a debt restructuring agreement with a group of lenders who hold roughly 40 percent of the company’s debt. But this agreement, sources say, could reduce the company’s debt load by more than $4 billion dollars.
According to Michael Hansen, the company’s chief executive, the decision to file for bankruptcy "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."
Sources say Cengage was spun off from Thomson Learning, a wing of Thomson, the Canadian media giant, when Thomson was in the early stages of a merger with Reuters in 2007.
At the time, the education company was purchased by Apax Partners and Omers Capital Partners, two private equity firms that bought Cengage for $7.75 billion, sources report.
Shortly after buying Cengage, the company embarked on an ambitious expansion campaign, buying the college publishing unit of Houghton Mufflin Harcourt and the digital and print school publishing unit of National Geographic for hundreds of millions of dollars.
In 2007, the aggressive expansion seemed like a good idea, but when the economy tanked later that year, Cengage was stuck with rapidly increasing debt at a time when its revenues started to dip.
The massive debt load ultimately proved untenable for Cengage, which will likely be able to eliminate billions of dollars in debt during its bankruptcy process, according to reports.
The company has also pledged to continue paying its current suppliers and employees during the bankruptcy filing, and company officials remain optimistic about Cengage’s future financial health. Sources say Cengage filed for bankruptcy in Brooklyn, New York, and the company still holds roughly $1 billion worth of valuable assets.
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