Houghton Mifflin Owner In Advanced Talks Over Debt

NEW YORK (Reuters) – The parent of textbook publisher Houghton Mifflin Harcourt Publishing Co is in advanced talks to slash its estimated $7 billion debt load by 60 percent, its second debt restructuring in less than a year.

The talks by Education Media and Publishing Group Ltd come as textbook publishers face potential sales declines because state and local governments are limiting spending to cope with budget deficits linked to the weak economy.

Boston-based Houghton Mifflin specializes in textbooks for children from kindergarten to 12th grade. It also publishes Curious George books and the works of J.R.R. Tolkien, including “The Lord of the Rings.” The company dates back to 1832.

Spokesman Josef Blumenfeld said the restructuring contemplates that equity investors in closely-held Education Media would see their interests “impaired,” but get new equity interests in a separate entity, Education Media and Publishing Group International.

He said the restructuring should take place “in the coming weeks.”

Speaking to a radio station in Dublin, Ireland, where Education Media has offices, Chairman Barry O’Callaghan on Thursday said equity investors have already seen their holdings tumble in value, and that his own paper losses are in the “hundreds of millions.” He nevertheless said the company would survive.

O’Callaghan is also Houghton Mifflin’s chief executive, and a former Credit Suisse Group AG (CSGN.VX) and Morgan Stanley (MS.N) banker. Blumenfeld confirmed O’Callaghan’s comments. O’Callaghan was not immediately available for an interview.

On Wednesday, Education Media had said it was in “advanced discussions regarding a comprehensive, consensual balance sheet restructuring.”

It said a “substantial majority” of its most important lenders had agreed to a framework for the plan, which may increase working capital by more than $600 million.

Education Media underwent a debt restructuring in August.

In 2006, O’Callaghan’s Riverdeep agreed to buy Houghton Mifflin from private equity firms Bain Capital LLC, Blackstone Group LP (BX.N) and Thomas H. Lee Partners LP [THL.UL] for $1.75 billion.

The combined company later bought Reed Elsevier NV’s (ELSN.AS) Harcourt education business for roughly $4 billion. (Reporting by Jonathan Stempel; editing by Gunna Dickson)