Bloomberg News

KKR, Centerbridge Group Said to Vie With Apax Over Cengage Fate

June 07, 2013

KKR & Co., Centerbridge Partners LP and GSO Capital Partners LP are part of a creditor group that amassed more than $2 billion in Cengage Learning Inc.’s senior debt as it vies with owner Apax Partners LLP to influence the fate of the publisher, said people familiar with the matter.

The lender group -- which had its first meeting with Cengage management yesterday -- acquired Cengage’s senior debt at a discount, giving them a bigger creditor stake than the publisher’s private-equity owner, said the people, who asked not to be identified because the process is is private. Apax bought $800 million to $1 billion of Cengage’s loans at a discount, the people said. The creditor group may seek to convert debt into part ownership of the publisher, they said.

Other senior creditors in the group include Oaktree Capital Group LLC (OAK:US), BlackRock Inc. (BLK:US) and Oak Hill Advisors LP, said the people. GSO is the credit unit of Blackstone Group LP. (BX:US) London-based Apax hasn’t yet engaged in direct negotiations with other creditors, and Cengage’s management and advisers continue to explore alternatives, said the people. Cengage said last month that it may need to file for bankruptcy as part of its restructuring efforts.

Cengage faces mounting pressure to restructure $5.8 billion in debt -- mostly from the 2007 leveraged buyout by Apax -- as payments come due in less than a month. Lenders are negotiating the company’s value and how to convert debt holdings into equity, said the people. A repayment deadline could be extended by several weeks if talks require more time, they said.

Expanding Talks

Houlihan Lokey is advising the committee of senior secured creditors, according to the people. Blackstone is advising JPMorgan Chase & Co. (JPM:US), which arranged the loans, on behalf of all the senior lenders -- a larger group that includes Apollo Global Management LLC (APO:US), the people said. Rothschild is working for Apax, according to the people.

Discussions may expand to include more creditors as well as Apax as soon as next week, said two of the people, because the company has interest payments due on June 30 and debt principal on July 5.

Initially, Cengage talked with senior creditors holding maturities looming this year and next, aiming to extend repayment deadlines in exchange for more favorable terms -- a move that would buy time for Cengage’s new management to execute its turnaround, the people said. Senior lenders, including those with longer maturities, are now involved, seeking a comprehensive restructuring covering the entire balance sheet, according to the people.

Teaching Materials

Cengage, which makes teaching materials for colleges, schools, libraries and corporations, was acquired by a private-equity group led by Apax from Thomson Reuters Corp. for $7.75 billion. The company said on March 22 that it had drawn down most of its revolving credit lines and hired restructuring advisers Alvarez & Marsal and Lazard Ltd. (LAZ:US), as well as law firm Kirkland & Ellis LLP, raising the prospect of bankruptcy.

Representatives of the creditors and advisory firms declined to comment or didn’t immediately return calls seeking comment. James McCusker, a spokesman for Cengage, declined to comment.

Cengage Chief Executive Officer Michael Hansen said in February that Apax had bought a “substantial” amount of the publisher’s first-lien debt at a discount, a move that gives it greater influence in restructuring talks. The buyout firm hasn’t publicly disclosed how much debt it has accumulated. Hansen said May 10 that the company is seeking to negotiate a “comprehensive restructuring transaction” with creditors and may file for bankruptcy after reaching some creditor agreements.

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net


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