Please email ft@debtwire.com or call us at Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731 for further information on Debtwire and how to receive more articles like the one below.
--------------------------------------------------------------------------------------------------------
Haights Cross’ series B preferred shareholders are negotiating a settlement with the publisher, said sources familiar with the situation. The settlement could result in the ad hoc committee receiving a controlling position in the company’s common shares, said the sources.
The ad hoc group of the preferred shareholders filed a suit against Haights Cross in the Delaware Chancery Court over the company’s failure to pursue strategic alternatives. The sides are said to be working on a deal in which the preferreds would swap their holdings for an 85% stake in the company, while management and existing shareholders would take the remaining equity, said those same sources.
The USD 50m series B preferred shares sit below Haights USD 130m first lien term loan, USD 170m 11.75% senior notes due 2011 and USD 135m of face amount senior discount notes due 2011.
There is some cross ownership in the preferred shares and bonds, but it is unclear how the other debt holders might be treated in the settlement, said one of the sources familiar with the situation. Both series of bonds carry a change-of-control clause at 101, according to SEC filings. The 11.75% senior notes also become callable at 105.875 on 15 August 2008, while the discount notes become callable at 106.25 on 15 February 2008. The 11.75% senior notes were last traded at 107 on 29 May, according to TRACE.
Last week, Haights Cross was served a default notice by Wells Fargo, the indenture trustee of its two note issues, for failure to file its annual report in a timely manner. The filing delay stems from an accounting review of the company’s compensation expense, said sources familiar with the situation. The company has a 60-day cure period to resolve the issue.
Haights Cross officials did not return calls seeking comment.
As reported, the ad hoc preferred group -Glenview Capital Partners, Quadrangle Group and Deephaven Capital- filed their lawsuit against the company in order to access Haights Cross’ books under the shareholder inspection rights pursuant to section 220 of the Delaware General Corporation Law, The ad hoc committee wanted access in order to investigate potential breaches of fiduciary duty by management.
The ad hoc committee claimed that Haights Cross failed to seek a sales process in the face of continued operating losses, thus hindering its ability to redeem the preferred shares accruing at 16% per annum, according to the complaint.
The preferreds might seek a sales process once the settlement is finalized, but there are roadblocks, said industry sources. Haights Cross has been viewed by the market as a mishmash of publishing assets that have not been integrated as well as they should, said an industry source.
The most appealing asset in the bunch is Haights’ Cross Options and Buckledown Publishing test prep business. Those assets generated 50% of Haights Cross bottom line in FY06. Any individual asset sale would carry tax consequences because there is a low value basis on the assets, said industry sources. This would affect both the buyer and seller of those assets.
There could still be a deal brewing given the depth of buyers trolling for media assets, conceded an industry source who ascribed an acquisition multiple of 8X-10X on the company. This values Haights Cross at between USD 432m-USD 540m based on its FY06 EBITDA of USD 54m.
--------------------------------------------------------------------------------------------------------
Debtwire is the most informed news service available on global distressed debt and leveraged finance and is used by hedge funds, proprietary trading desks, asset managers, restructuring financial and legal advisors. Debtwire provides clients with articles such as the one above in real-time via an online platform and personalized email and BlackBerry alerts. For further information on Debtwire please email ft@debtwire.com
or call us at Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731
