Houghton Miffline Harcourt Harvard Case Solution & Analysis

  1. Do you think HMH’s business operations need to be restructured? Explain.

Restructuring is defined as the step which is taken by the company to modify its debts, company structure or its operations. Most companiesundertake a restructuring plan when it faces some financial difficulties such as fall in sales or EBITDA margins, facing stress from the competitors, demanding conditions for the restoration of the debts and others.

Houghton Miffline Harcourt (HMH’s) mainly operates in K-12 markets however the company also operates in two other business Trade and Reference business and International business. The company enjoys thestable growth of 5.3% at K-12 market. However, after the financial crisis of 2008-2009, this growth has been jeopardizing. Moreover,the other sectors of the company also affected drastically due to the economic recession.
Houghton Miffline Harcourt Harvard Case Solution & Analysis

The impact of economic recession on the financials of the company can be understood by analyzing the financial performance of the company.

By analyzing the operating statics we can conclude that the revenue of the company has been reduced by 5% in 2008 however in 2009 it has been reducing by 36%. Along with this the free cash flows of the company also reduced by the 396%. Moreover, inventory, total cash, and PP&E of the company reduced by 3%, 80%, and 21%respectively in 2009.

Due to this adverse movement, the company breaches most of the covenants such as leverage ratios and other therefore it is possible that these debt providers may call their debts and due to this the company may face liquidity issues. Moreover, the other players such as Pearson and McGraw Hills also change their operations according to the market condition. Therefore HMH should also restructure its operations. See Exhibit

  1. If you were advising HMH senior management, which of the following options for restructuring the company’s debt would you recommend that it pursue: a free-fall Chapter 11 reorganization; and out-of-court restructuring: or a prepackaged Chapter 11 filing? Why? Are there any other options management should seriously consider?

To address the financial problems of the company the management identified three options which are:

  1. Negotiation to amend or waive the covenants,
  2. Issue of equity to refinance the company’s debts, and
  • Comprehensive financial restructuring.

In comprehensive financial restructuring company further identifies three options which are; a free-fall Chapter 11 reorganization; and out-of-court restructuring: or a prepackaged Chapter 11 filing.

A free-fall Chapter 11 reorganization:

Under this restructuring option,the company files a petition for protection under U.S. Bankruptcy Code Chapter 11. Under this code, the company obtains sometimesfor the liquidation in this time the company mainly focus on restructuring its business and capital structure.

This code provides many benefits to the company such as this code precludes the secured creditors from seizing their securities.Moreover, this code also providesexecutory contracts benefit which stated that the debtor is allowed to reject the selective contract which is unfavorable for it. In addition to this, the code also has adebtor in possession financing feature due to this feature the new debtor will obtain superiority against the existing ones. Furthermore, after using this option the company can save the associated interest and principle expense and can also sale the assets of the company without any fear..........................

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