Rumored Shareholder Wipe-out
On 13 January 2010, Irish politician, George Lee, the opposition party, Fine Gael's TD for Dublin South, told journalists that EMPG has failed with equity investors likely to be wipe-out and the Irish taxpayer was exposed since the nationalised bank, Anglo Irish Bank has lent money to the shareholders of EMPG.
Commented Lee
| “ | It has been reported to me that the education materials company Houghton Mifflin Harcourt has failed, and that a number of Irish equity investors have lost significant sums of money as a result. Many of these investors were funded through large loans from Anglo Irish Bank, which is now wholly owned by Irish taxpayers.
As a company, Houghton Mifflin Harcourt was a highly leveraged operation and had very significant banking commitments. I understand that the remaining US business is to be transferred to its bond holders. However, it appears that its Irish equity investors will lose all of their investment as a result of this failure. This will have repercussions for Anglo Irish Bank, and possibly other Irish banks, and therefore the Irish taxpayer. This incident adds further weight to Fine Gael's calls for an urgent investigation into the Irish banking crisis. Fuller details of the goings-on within Anglo Irish Bank's risky lending practices are still emerging, and this development with Houghton Mifflin Harcourt sheds further light. However, only a full, forensic investigation into the crisis will ensure that it never happens again. |
” |
EMPG confirmed that it was in advanced negotiations with its lenders about a comprehensive restructuring, that could see a 70% reduction in the current debt levels that would lead to Paulson & Co., a hedge fund, becoming the largest shareholder. According to the Financial Times, second lien investors had not yet approved the plan which would see half of the $5bn of first-lien debt convert into circa 90% of the equity of Houghton Mifflin Harcourt, with the remaining equity for the $2bn second lien investors and the old EMPG shareholders. The Financial Times story indicated that Houghton Mifflin Harcourt was considering a pre-packaged bankruptcy if the negotiations with lenders were not approved.
According to the Irish Times, investors of Davy Stockbrokers had $475m of equity in EMPG. In contrast to the statement of George Lee that Irish taxpayers were exposed, an Anglo Irish Bank spokesperson was reported by the Irish Times to state that it did not have a “big exposure” to EMPG. However, the spokesperson did not comment on whether it has exposure to individuals that have exposure to EMPG.
Interviewed on Irish State broadcaster, RTE, Barry O'Callaghan, Chairman on EMPG and CEO of Houghton Mifflin Harcourt, confirmed that Irish investors as well as he himself were facing huge losses. He stated that "no-one has lost more than me". According to the Irish Independent, Barry O'Callaghan is a large personal customer of Anglo Irish Bank. The article stated that Barry O'Callaghan may be forced to step down once the restructuring package was agreed. This contrasted with his interview with the Financial Times where he insisted that he would continue to run the business.
Read more about this topic: EMPG, Financial Reorganization