This Can't Be Good - Houghton Mifflin Harcourt Credit Rating Removed
Moodys* has completely withdrawn credit ratings for Houghton Mifflin Harcourt (HMH) after downgrading it to high risk just last month. This action means Moodys believes there is a high probability of default. From a practical standpoint this means that it will be harder and more expensive to service the company's $6.7 billion in debt on $2.1 billion in revenue.
According to the Irish Times the rationale was:
"the business risk and competitive position of the company versus others within its industry; the capital structure and financial risk of the company; the projected financial and operating performance of the company over the near-to-intermediate term, and management’s track record and tolerance for risk,”Ouch.
The timing is particularly inauspicious as stimulus funds for education are just starting to show up in purchases of instructional materials. This should accelerate rapidly into June and July.
If the company is going to fail, it is in the interest of schools and the publishing industry that it happen as gracefully as it can. Many of the lenders have already agreed to relaxed terms which is a good sign.
How HMH would break up and be absorbed by the other industry leaders is an interesting question. There would be obvious questions about anti-trust issues since so much consolidation has already occurred in the industry. The many venerable imprints and popular materials would continue to hold value so they would ultimately find a home, probably with some kind of private equity play. The question would be at what price in this market?
Hopefully for all our friends at HMH the tide will turn once the ARRA money is flowing.
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Lee Wilson is President & CEO of 
Comments
Textbook publishers definitely face challenging times now.
An important point to note: most textbook publishers are involved in many businesses, including mainstream publishing of trade paperbacks and hardbacks, so they are exposed to many long-term and medium-term trends that can hurt the bottom line.
Posted by: John Soares | May 16, 2009 9:14 AM
According to the "powers that be," HMH requested to be removed from Moody's list because they are not a publicly held company. I'm not saying I'm buying it, but that's the company's story...and they are sticking to it.
Posted by: AshleyShea | June 12, 2009 5:58 PM