The CFO of Houghton Mifflin Harcourt explains how the publishing giant purged its balance sheet of a debt load that was devouring its operating cash flow.

Houghton Mifflin Harcourt’s finance group overhauled its forecasting process in 2010, incorporating a deeper understanding of customer needs and “an entirely new level of scenario analysis,” a finance staffer told CFO at the time.
Better forecasting, however, didn’t clear the publishing company’s balance sheet of a pile of legacy debt created by two leveraged buyouts. That took bankrutpcy. Last year, Houghton Mifflin Harcourt filed Chapter 11 in the seventh largest such transaction (by assets) last year.

But how does a business, whose industry is undergoing huge change and whose customers are also cash-strapped, recover from a series of leveraged buyouts that loaded it with huge interest payments?

Eric Shuman, the CFO of HMH since November 2011, says it wasn’t easy. “This is a process that you hopefully go through only once in your career,” he says.

Houghton Mifflin filed a prepackaged Chapter 11 and emerged 32 days later. The transaction wasn’t particularly remarkable to outsiders. But Shuman listed a number favorable circumstances, as well as key decisions, that pulled the rabbit out of the hat.

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