HMH in new move to cut debt by $3bn Educational publishing and services company Houghton Mifflin Harcourt plans to eliminate another $3.1bn of debt in its second restructuring in a little over two years. The "pre-packaged" Chapter 11 court process will convert debt held by groups led by Paulson & Co, the hedge fund run by John Paulson, into 100 per cent of the group's equity. The announcement will wipe out the equity that senior lenders took in a restructuring in February 2010, which cut debt from $7bn to about $3bn, but heralds an end to a long period in which HMH has struggled with an over-indebted capital structure. Other lenders to the group include Apollo Global Management, BlackRock, Guggenheim Partners, Fidelity and Avenue Capital. HMH with be left with just $500m in new asset-backed and term loans provided by Citigroup. The restructuring has the backing of more than 70 per cent of senior secured lenders and bondholders. If equity holders also vote in favour, they will receive warrants exercisable for up to 5 per cent of the equity in the reorganised group. HMH was built up through two leveraged buyouts led by Barry O'Callaghan, an Irish entrepreneur who used a small educational software company called Riverdeep to buy two of the biggest names in educational publishing. The group competes in education and consumer publishing markets with Pearson, owner of the Financial Times and Penguin. Eric Shuman, chief financial officer, told the FT that a second restructuring had become necessary because the pace at which state education budgets had recovered from the US recession and financial crisis had been slower than it expected. "Previous management believed the economy would recover more quickly than it ultimately did recover," he said, adding that US state tax receipts were now at or above their pre-recession levels. In 2010 HMH raised more than $500m in cash from a $650m rights issue, and it expects to emerge from the Chapter 11 process with $135m from its existing cash reserves. The new financial structure will allow HMH to pursue growth opportunities in a business that is rapidly adapting to the advance of new digital technologies, Mr Shuman said, and to explore "various adjacent markets." "With a more appropriately-sized capital structure and greater financial flexibility, along with our world-class brand and innovative digital education solutions, we will be well-positioned to accelerate our growth initiatives and expand our digital platform," Linda Zecher, HMH's chief executive officer, said in a statement. HMH was advised by Blackstone and Paul, Weiss, Rifkind, Wharton & Garrison. Lenders were advised by Akin Gump Strauss Hauer & Feld and Houlihan Lokey.