By Dow Jones Business News, September 23, 2013, 01:16:00 PM EDT
By Stephanie Gleason
Cengage Learning Inc. took legal action Friday to keep $273.9 million in cash out of the grasp of secured creditors
who have liens on nearly all of Cengage's assets.
The textbook publisher had previously identified this so-called disputed cash as a potential source of recovery for
unsecured creditors that are owed $487.7 million and are slated to see little under Cengage's proposed restructuring.
However, J.P. Morgan Chase Bank, on behalf of first-lien lenders, has stated in court papers that the cash is a part
of the assets securing its $3.9 billion credit facility. J.P. Morgan argued that the cash falls under the "investment
property" portion of its security agreement.
Cengage replied, saying that the security agreements are "unambiguous and plainly exclude from the Prepetition Secured
Parties' Collateral Package all equity investments in entities other than wholly owned subsidiaries of the company,"
according to a lawsuit filed with the U.S. Bankruptcy Court in Brooklyn, N.Y., in conjunction with its Chapter 11 case.
The cash in question is the balance of a $300 million credit facility drawn from a federated money-market fund,
trading under the ticker TOIXX. Because the asset as an equity interest in the fund, it is outside the reach of secured
creditors' agreement with Cengage, it said.
The company is asking the bankruptcy court to rule that no secured creditor "has a security interest in the Disputed
Cash," thereby preserving it for unsecured creditors.
In addition to the disputed cash, Cengage has identified two other possible sources of recovery for unsecured
creditors--1,500 copyrights and a 35% equity stake in Cengage's foreign subsidiaries.
Cengage, based in Stamford, Conn., filed for Chapter 11 bankruptcy in July after negotiating a restructuring deal with
its first-lien creditors that would eliminate more than $4 billion in debt from its balance sheet.
Under the proposed restructuring, Cengage's first-lien creditors, including private-equity firm Apax Partners LP,
would get 100% of the equity in the reorganized company, along with a new note worth $1.5 billion or a $1.75 billion
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to
Write to Stephanie Gleason at email@example.com
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