Houghton Mifflin Harcourt rejects approach for literature unit
Houghton Mifflin Harcourt (HMH), part of the highly indebted education publishing empire built up by Barry O'Callaghan's Riverdeep, is believed to have turned down an unsolicited approach in recent months for its consumer literature business.
However, the group is open to selling the unit, which accounts for about 4pc of total profits, as it focuses on its core US kindergarten-to-12th (K-12) grade publishing operations.
The consumer arm, publisher of top American novelist Philip Roth and Nobel-prize-winning German author Guenter Grass, hit the headlines in November when it stopped taking in new manuscripts.
HMH took issue this week with recent comments from Moody's about its financial position as the ratings agency downgraded its stance on the company's debt from 'B3' to 'Caa1' -- which ranks 16 levels below its top-notch 'Aaa' rating.
The move affected some $6.6bn of the group's debt mountain.
Moody's estimates that the company's borrowings amount to 10.5 times its annual earnings before interest, tax, depreciation and amortisation (EBITDA) -- higher than the agency's target of about nine times.
However, a spokeswoman for HMH said that actual ratio stood at 8.4 times.
"In fact, despite current economic conditions, Houghton Mifflin Harcourt remains on solid operational footing and continues to make important strides in delivering on its long-term vision," the company said.
The spokeswoman added that the company was on track to achieve double-digit growth in EBITDA for 2008 and has ample liquidity to meet its needs.
Mr O'Callaghan has assembled one of the world's biggest publishing giants over the past two years by merging his Riverdeep with Houghton Mifflin and subsequently taking over Harcourt from Anglo-Dutch group Reed Elsevier.
The holding group, named Education Media & Publish Group, racked up a debt pile in excess of $7bn in the process.
Moody's said "the recent downturn of market spending on K-12 instructional material will become more extensive than previously anticipated, placing strain upon the company's liquidity profile and heightening the probably of covenant default".
The spokeswoman said, however, that HMH was "comfortably ahead of its covenants". The company believe US President-elect Barack Obama's economic stimulus package will bring about some relief to local government budgets.
"Given the stated objective of the incoming Obama Administration of the importance of education to the US global competitiveness, we are hopeful that school districts will have the necessary funding available to ensure students have the appropriate instructional materials to use in the classroom and to take home," it said.