Cengage Sues to Protect Thousands of Textbook Copyrights
Cengage Learning Inc. is suing its lenders, who are owed $5.8 billion, to erase the claim that group is asserting on thousands of copyrights.
The copyrights are part of a package of assets that Cengage is hoping to use to pay unsecured creditors, who are owed $487.7 million and can only see a recovery from assets that are free of lender claims. Cengage identified these copyrights at the beginning of its Chapter 11 case as assets that lenders, represented by J.P. Morgan Chase Bank N.A., aren't entitled to. The lenders have disputed this.
The liens on these copyrights were asserted within the three months leading up to Cengage's Chapter 11 filing, making them invalid, Cengage argued in documents filed with the U.S. Bankruptcy Court in Brooklyn, N.Y. Some of the liens weren't even acknowledged by the U.S. Copyright Office yet, the company said.
The Bankruptcy Code generally allows transfers made prior to a Chapter 11 filing, but while a company is insolvent, to be undone or avoided.
Cengage has identified 15,750 copyrights that it says fall into this category. The copyrights represent the intellectual property of thousands of individual textbooks published by Cengage.
In addition to the copyrights, Cengage has pointed to two other possible sources of recovery for unsecured creditors-- $273.9 million and a 35% equity stake in Cengage's foreign subsidiaries. This is the second lawsuit filed recently by Cengage to protect these assets. In late September, it filed a similar lawsuit over the cash portion of the package.
Cengage, based in Stamford, Conn., filed for Chapter 11 bankruptcy in July after negotiating a restructuring deal with its first-lien creditors that would eliminate more than $4 billion in debt from its balance sheet.
Its first-lien debt is held by Apax Partners LP, Searchlight Capital Partners, Kohlberg Kravis Roberts & Co., BlackRock Financial Management Inc., Oaktree Capital Management LP, Oak Hill Advisors LP, Franklin Mutual Advisors LLC, and Deutsche Bank Trust Co. Americas.
Under the proposed restructuring, this group would get 100% of the equity in the reorganized company, along with a new note worth $1.5 billion or a $1.75 billion cash payment.
Unsecured creditors and second-lien bondholders haven't agreed to support the restructuring proposal.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
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