Apax, Omers to hand over publisher: sources

TORONTO / NEW YORK • Apax Partners and Omers Private Equity Inc. will relinquish ownership of textbook publisher Nelson Education Ltd. to a group of investors who own the company’s top-tier debt as part of a restructuring agreement, according to four people with direct knowledge of the situation.

Creditors led by Ares Management, Citigroup Inc., Mudrick Capital Management and Sound Point Capital Management have agreed to a plan that gives them control of Nelson, said three of the people, who asked not to be identified because the talks are private. The publisher is preparing to file for bankruptcy in Canada under the Companies’ Creditors Arrangement Act, the people said.

Apax and Omers are in effect walking away from an acquisition whose excesses characterized the 2007 buyout boom, a catalyst for the credit crisis that caused US$2 trillion of losses for lenders.

They bought what was formerly Thomson Corp.’ s education publishing business for US$7.75 billion in 2007, splitting it into Cengage Learning Inc. and Nelson. Lower-priority creditors won’t be compensated under the plan, the people said.

Representatives of Citigroup, Mudrick Capital, Sound Point, Apax and Omers declined to comment. Bill Mendel, a spokesman at Mendel Communications for Ares, didn’t immediately comment. Greg Nordal, Nelson’s chief executive, and Michael Andrews, its chief financial officer, didn’t respond to telephone messages.

Nelson owes US$278.8 million on a first-lien term loan and US$152 million for a second-lien obligation, both of which are in default, according to data compiled by Bloomberg.

Growing use of technology in classrooms and declining spending on resources is squeezing publishers including Nelson. Cengage emerged from bankruptcy in 2014 after reaching a deal with lenders that eliminated more than US$4 billion of US$5.8 billion in debt and left first-lien creditors with most of the equity.

Spending on educational resources accounts for less than 1% of total education

Spending on educational resources is declining

spending, and is declining, according to a 2012 paper published by the Association of Canadian Publishers.

The paper said schools in Toronto were purchasing MacBooks and Netbooks while freezing spending on textbooks. “Purchases of traditional resources will suffer as spending shifts to digital purposes,” according to the report.

Omers, the majority owner of Nelson, is part of Ontario Municipal Employees Retirement System, a pension fund manager with about $90 billion in assets.