Hard lessons to be learned at deeply indebted publisher
Barry O'Callaghan's EMPG published 50pc of school textbooks in the US, but ended up as one of the most indebted media companies in the world.
Never has a company had as big a gap between its financial position and its brands as Barry O'Callaghan's Education Media & Publishing Group (EMPG).
While the company is famous for its stable of celebrated literary brands, such as Philip Roth and Gunter Grass, its financial position has rarely been celebrated in recent years.
Instead the company has been weighed down by $7bn (e5bn) of debt -- most of it carrying junk bond status. A succession of mega deals, most of them pushed through by Mr O'Callaghan, left the company with a huge debt burden going into the most severe American recession since the 1930s.
Now a "comprehensive balance sheet restructuring'' is to be undertaken, coming only months after an earlier attempt was made to loosen the company's suffocating debt burden.
This was so large that eventually the company decided it didn't want to face any more downgrades from the ratings agencies and it withdrew from the system last year.
At one point last year, EMPG had one of the largest debt burdens of any junk-bond rated media company in the world.
The crucial deals which levered up the EMPG balance sheet took place in 2006 when Riverdeep bought Houghton Mifflin Holdings from a group of private equity interests in a deal valued at the time at $1.75bn, plus debt.
In 2007, another mega deal was done when Reed Elsevier's Harcourt business division was acquired by the enlarged group for $4bn in cash and stock.
The completion of these deals left EMPG with huge debt repayments, and even though it held "market leading positions'' in the US education publishing market, the credit markets were starting to seize up by late 2007 which meant that rolling over debt was going to be difficult and expensive.
Mr O'Callaghan was once described as a consummate deal-maker and something of a financial alchemist. But he was the first to admit that while he knew a lot about deal making, education publishing was not in his blood.
The company for the past year has been hanging tough on the debt issue, pointing out that no education publisher has ever ended up in Chapter 11 bankruptcy. But that was not reassuring enough for many in the market and the restructuring has effectively been forced on the company.
EMPG has been moving closer and closer to the edge of painful restructuring for some time. Headroom on its loan covenants has been getting tighter.
It is understood the company was in danger of missing a bond payment this week, but forbearance has been extended by its creditors until the end of the month.
This should give the company some badly needed breathing space in order to get a deal over the line.