Creditors Object to Cengage Exit-Financing Engagement
By Stephanie Gleason
Cengage Learning Inc.'s efforts to line up $2 billion in bankruptcy-exit financing are facing headwinds from the committee representing unsecured creditors, which says the financing is "premature and unnecessary."
The official committee of unsecured creditors said in court documents filed Monday that it doesn't support such a large commitment of resources in connection with a bankruptcy-exit plan it believes "cannot be confirmed, or at best, has a real risk of not being confirmed."
The committee long has argued that it doesn't believe Cengage's current plan for exiting Chapter 11 bankruptcy can be approved by the court. Cengage and its creditors have been in mediation, with the goal of resolving disagreements prior to Feb. 24, when Judge Elizabeth Stong is slated to consider confirmation of the plan, putting Cengage on track to emerge from bankruptcy in March.
But if mediation fails, the committee said, confirmation of Cengage's bankruptcy-exit plan may get pushed back until April or May.
"During this time, the market may change or different arrangers may be more appropriate at the time of confirmation if the Plan is revised or confirmed with changes (which the Committee submits is required under any circumstances)," the committee said in support of its argument to delay arranging this financing.
A lawyer for Cengage didn't respond to request for comment Tuesday.
In late December, Cengage filed its request to hire a group of banks to line up as much as $2 billion in financing, including a $250 million revolving facility and a term loan of between $1.5 billion and $1.75 billion. The banks--Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Morgan Stanley Senior Funding Inc. and KKR Capital Markets LLC--would "use their commercially reasonable efforts to structure, arrange, and syndicate" the loans.
The company said that it must syndicate the loan by Jan. 15 to exit bankruptcy in March.
It also requested permission to file the engagement letter with the banks under seal--a request that drew fire from the U.S. trustee, a U.S. Department of Justice bankruptcy representative.
William K. Harrington, the U.S. trustee for New York, said Cengage hasn't shown that the engagement letter contains trade secrets or confidential research that would allow for sealing under the Bankruptcy Code. Rather, he said, public policy favors public access to court records and recommended that the court deny Cengage's request to keep the letter confidential.
Judge Stong will hear the requests Thursday in the U.S. Bankruptcy Court in Brooklyn, N.Y.
Cengage, a textbook publisher, filed for Chapter 11 protection in July with a plan to swap more than $4 billion in first-lien debt for 100% equity in the restructured company.
There are three asset groups, including cash, copyrights and a subsidiary equity stake, that could be used to pay junior and unsecured creditors--together owed $1.3 billion--but Cengage's first-lien lenders have argued they are entitled to those assets.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com.)
Write to Stephanie Gleason at email@example.com
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