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July 05, 2013

Cengage files for bankruptcy protection

cengage-learning-logo.jpgPublishing giant Cengage Learning has formulated a debt-for-equity swap with creditors to wipe some $4 billion in debt from its balance sheet. The company, which filed for Chapter 11 bankruptcy protection in the US this week, cited a failure to move quickly enough from print to digital as a major reason for its financial woes.

“The whole industry by and large has been a little bit guilty to not change quickly enough to the new paradigm; Cengage was certainly part of that,” said CEO Michael Hansen. “There was an underlying belief that the print model would hold up better than it actually did, particularly recently.”

Hansen says that when he joined the company in September 2012 it was not with the intention of steering it towards bankruptcy, but he took over a firm saddled with billions of dollars in debt. Cengage, formerly known as Thomson learning, was the target of a $7.75 billion leveraged buyout by private-equity group Apax from Thomson Reuters Corp. in 2007.

The deal, at the height of the leveraged buyout boom, left almost $6 billion in debt on the company's books. Cengage later acquired the college publishing division of Houghton Mifflin Harcourt Publishing and National Geographic’s digital and print school publishing unit. But market share has been eroded by such factors as decreasing sales of textbooks to schools and students and increased competition from online subscription models, free open-source materials, and textbook-rental services.

Cengage has been in touch with key suppliers and customers to "reassure them it's going to be business as usual going forward and we have plenty of cash."

Cengage's official statement on the development could be used as a textbook example of corporate-speak, with the title, "Cengage Learning Reaches Agreement with Lenders to Restructure Balance Sheet and Strengthen Financial Position" and a prominent get-out-of-jail card in the form of a paragraph titled, "Forward Looking Statements." But we wish them well in what are challenging times for all the major ELT publishers.

Read a report from Bloomberg.

Read the statement from Cengage Learning.

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