By Dow Jones Business News, November 04, 2013, 12:17:00 PM EDT
Cengage Learning Inc.'s first-lien lenders have filed a lawsuit against junior bondholders, who are pursuing payment
from a pool of Cengage's cash and copyrights in violation of the creditor agreement, the lenders say.
Filed as part of Cengage's Chapter 11 case, the lawsuit is the latest in the fight over these assets, which Cengage
has said junior, or second-lien, bondholders and unsecured creditors can share.
At stake is a $265 million pool of cash, the result of a draw on Cengage's credit facility ahead of its bankruptcy
filing, and a trove of more than 15,000 copyrights, which protect the intellectual property on thousands of textbooks.
J.P. Morgan Chase Bank N.A., which represents the lenders, has disputed Cengage's right to award these assets to other
creditor groups, saying first-lien lenders have liens on them. Now, J.P. Morgan says that the junior bondholders' quest
for payment violates the agreement between first-lien lenders and junior bondholders.
"These actions directly and unambiguously violate CSC's obligations and undertakings under the Intercreditor
Agreement, in which the Second Lien Debt Parties negotiated away and ceded their rights to contest the validity, extent
and priority of the First Lien Secured Parties' liens on any bankruptcy proceedings by the Debtors," J.P. Morgan said of
CSC Trust Co., which represents second-lien bondholders, in court documents filed Friday.
A lawyer representing CSC Trust and junior bondholders wasn't immediately available for comment Monday.
In addition to this lawsuit, Cengage has sued to protect its right to grant these assets. First-lien lenders have
alleged in another lawsuit that Cengage's misled them into agreeing to the loan draw.
Cengage filed for Chapter 11 bankruptcy in July with a plan to give first-lien creditors, owed more than $4 billion,
100% equity in the restructured company.
It said that junior bondholders and unsecured creditors, together owed $1.3 billion, could share the cash pool, the
copyrights and a 35% stake in foreign and non-debtor subsidiaries. Neither of these group signed on to support the plan.
Cengage is in mediation with the parties over the bankruptcy-exit plan, which it hopes to implement early next year.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to
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