Barry O'Callaghan's Education Media & Publishing Group (EMPG) confirmed last night it has reached an "historic" restructuring that will see 60pc of the group's $6bn-plus (€4.4bn) debt mountain convert into equity.
The deal all but squeezes out the group's old shareholders - including Mr O'Callaghan, Anglo-Dutch publisher Reed Elsevier and clients of Davy.
Long-suffering existing shareholders in the company, which trades under the name Houghton Mifflin Harcourt, will be left holding "warrants that will enable them to participate in 5pc of the value" if its overall valuation recovers to the level seen at the time Mr O'Callaghan took over Harcourt.
It is estimated the group had an enterprise value approaching €10bn at the time of the deal, struck just weeks before the financial markets went into a tailspin in August 2008 as the sub-prime crisis erupted.
That deal was preceded seven months' earlier by Mr O'Callaghan using his original company, education software provider Riverdeep, to acquire Houghton Mifflin, giving him a foothold in the publishing market for schoolchildren in the US.
The debt restructuring sees the group's senior lenders, led by US hedge fund Paulson & Co, convert $2bn of secured debt into equity. All its holders of $2.1bn of mezzanine debt will also convert.
In addition, the group is preparing to compete a $650m equity raising from "a deep, institutionalised investor base", understood to be led by its senior debt holders, to give it about $600m of working capital to fund its day-to-day activities.
All told, the overhaul, to be completed by March 9, lowers its annual interest payments by more than 75pc, EMPG said.