EMPG reaches new agreement to turn debts into equity
Hedge fund to become publishing group's largest shareholder
Barry O'Callaghan's Education Media & Publishing Group (EMPG) is understood to have reached an outline agreement on a massive debt restructuring plan, paving the way for one of the world's largest hedge funds to become its largest shareholder.
An agreement in principle for bondholders to convert a large portion of their $6.6bn (€4.5bn) of EMPG debt into equity -- all but wiping out existing shareholders -- will allow the publishing group to also start selling $650m of new shares as early as next week.
The share placement to senior bondholders, including hedge fund giant Paulson & Co, will provide the group with $600m of working capital to fund its day-to-day activities.
The company declined to comment, other than to say: "We continue to enjoy the overwhelming support of our lenders."
An announcement is not expected for another few weeks.
Paulson & Co is headed by John Paulson, who became the hedge fund industry's biggest earner in 2007 on the back of a massive bet against US subprime mortgages that personally netted him $3.7bn.
The fund is believed to have actively targeted buying up EMPG debt last year, leaving it in a position to count ahead of other senior bondholders, Apollo, BlackRock and Guggenheim Partners, on the shareholder register when the restructuring is completed.
Meanwhile, industry sources said that EMPG was also lining up a $100m venture fund to drive innovation and ideas for the publisher in the highly competitive education sector.
They said that this further underpinned the bondholders' commitment to the business as it goes through its second debt restructuring package in six months.
Mr O'Callaghan formed EMPG through the $5bn merger of his Riverdeep e-learning company in 2006 with US textbook group Houghton Mifflin (HM), and their subsequent $4bn acquisition of Harcourt Education in America from Reed Elsevier.
The second takeover, which catapulted it to position of top textbook publisher for schoolchildren from kindergarten to grade 12, was struck just weeks before the financial markets went into a tailspin in August 2008 after the US subprime crisis erupted.
Last year's debt deal saw shareholders -- such as Mr O'Callaghan, Reed Elsevier and clients of stockbrokers Davy -- suffer a 45pc dilution of their stakes as EMPG's junior debtors swapped $1bn of debt for equity.
The current negotiations with the senior debtors are expected to move their holdings close to zero. However, it is believed that they would still hold a stake in EMPG's international business and a right to claw back some of their investment if profits rebounded strongly.