Houghton Mifflin Harcourt Reaches Agreement with Lenders and Investors to Convert Current Debt to Equity

BOSTON -- Global education leader Houghton Mifflin Harcourt (HMH) today announced that it has reached an agreement with more than 70% of its senior secured lenders and bondholders on the terms of a comprehensive financial restructuring plan to convert HMH’s outstanding long-term debt to equity and create an appropriate capital structure to support the Company’s strategic plan and business objectives. Acceptance of this plan is currently being solicited by the Company from its broader lender, bondholder and shareholder constituencies. If approved by the requisite percentages and implemented as proposed, HMH will eliminate $3.1 billion of debt and reduce current annual cash interest costs by approximately $250 million, providing the Company with greater liquidity and financial flexibility as it pursues growth opportunities in the digital, consumer and international markets.  “We are excited to have reached an agreement with our lenders and bondholders on a financial restructuring plan that will equitize our current long-term debt and put HMH in a financially stronger position for the future,” said Linda K. Zecher, President and Chief Executive Officer of HMH. “With a more appropriately-sized capital structure and greater financial flexibility, along with our world-class brand and innovative digital education solutions, we will be well-positioned to accelerate our growth initiatives and expand our digital platform.”  Under terms of the comprehensive financial restructuring plan, HMH will convert its existing bank and bond debt into 100% of the equity in the reorganized Company; trade creditors and other unsecured creditors will be paid in full in the ordinary course. If their class votes in favor of the restructuring plan, existing equity holders will receive warrants exercisable for up to 5% of the equity in the reorganized Company. In addition, HMH has received a commitment for $500 million in financing from Citigroup Global Markets Inc.  “We are thrilled that our lenders recognize the long-term value of HMH, and are grateful for the support they have shown. This agreement speaks to their faith in HMH’s senior leadership,” added Zecher. “We will continue normal business operations, with no expected disruptions to our relationships with our employees, customers, business partners, or suppliers.”  To facilitate these important changes to HMH’s capital structure, in the near future the Company plans to utilize a “pre-packaged” plan of reorganization that will be implemented through a prompt, court-supervised, chapter 11 process. This will have no impact on the Company’s day-to-day operations.  While no assurances can be given, because of the high level of support HMH has obtained from its lenders and bondholders for the plan, it expects to complete this financial restructuring quickly, likely by the end of June 2012. Implementation of the restructuring plan is subject to court approval and other closing conditions.  The Company’s restructuring counsel is Paul, Weiss, Rifkind, Wharton & Garrison LLP and its financial advisor is Blackstone. The lenders’ restructuring counsel is Akin Gump Strauss Hauer & Feld LLP and their financial advisor is Houlihan Lokey Capital, Inc. For additional information, please visit hmhco.com/restructuringAbout Houghton Mifflin Harcourt  With education products and services used by 57 million students throughout all 50 U.S. states and 120 countries, Houghton Mifflin Harcourt is a global education and learning company. One of the world’s largest providers of materials for pre-K–12 learning, Houghton Mifflin Harcourt is leading the way with innovative solutions and approaches to the challenges facing education today. Through curricula excellence coupled with technology innovations and professional services, Houghton Mifflin Harcourt collaborates with school districts, administrators, teachers, parents and students, providing interactive, results-driven learning solutions. Its Educational Consulting Services group works to increase student achievement in underperforming schools by developing, implementing and supporting education transformation through sustained district partnerships. With origins dating back to 1832, the Company also publishes an extensive line of reference works and award-winning literature for adults and young readers. For more information, visit www.hmhco.com.  This press release is for informational purposes only and shall not constitute a solicitation to accept or reject the Prepackaged Plan or an offer to sell or the solicitation of an offer to buy securities, nor shall there be any offer or sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.