Joel R. Glucksman
Partner
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Cengage Learning, the elite academic content and software corporation, is strongly considering seeking bankruptcy proceedings following the release of disappointing third quarter financial results.
In a conference call with reporters, Cengage CEO Michael Hansen explained that the company was forced to borrow the whole of its remaining available credit limit – approximately $430 million – in March, and may be unable to repay its indebtedness if it is are not permitted to refinance or obtain an extended credit line. He also said that while the company is currently in compliance with all of its debt obligations, it may fall out of compliance by June 30, according to Bloomberg.
Currently, Cengage is attempting to restructure its company out of court, but is considering a pre-negotiated bankruptcy package if its first option fails. The company’s situation may worsen in July when millions in revolving loan debt are due to lenders.
“The Chapter 11 process can be an effective way of achieving a fast and efficient debt restructuring with minimal disruption to the business, particularly where agreement is reached with key financial stakeholders on a plan – on the outlines of a plan – prior to the filing,” Hansen said in the call. However, no concrete decisions have been made as of yet.
As of March 31, the company reported $417.5 million in cash and long-term debt amounting to $5.25 billion, according to Bloomberg. The company implemented a range of new strategies in an attempt to improve their position, such as pushing more digital content and subscriptions, cutting incentives, and slashing operating costs. However, Cengage said that while the elimination of incentives may serve as a short-term solution to shaving costs, it may hurt future sales.
- Practices: Corporate Transactions & Business, Bankruptcy & Creditors' Rights, Bankruptcy Litigation
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