Thursday, July 04, 2013


Over on his blog, Paul Krugman calls attention to the Cengage bankruptcy.  I am not sure why he thinks this event is noteworthy.  He seems to do so because Cengage is the publisher of my favorite textbook. I suppose it is schadenfreude on Paul's part.

If you are interested in the topic, I suggest you read this article.  The short story is that this is a Chapter 11 bankruptcy (a reorganization), not a Chapter 7 bankruptcy (a liquidation).  These are very different things. In this case, the equity holders are being wiped out, and the debt holders are the new equity holders.  Otherwise, not much is happening.  As the article states:
The transaction is expected to be largely a non-event for others doing business with Cengage. The company has permission from the lenders to keep using cash flow from operations to fund the business, and expects to keep paying vendors, authors’ royalties, and employees on schedule. (Since Cengage has substantial cash balances—a vendor Frequently Asked Questions document estimates the company’s liquidity at approximately $280 million—and expects to generate positive cash flow, it does not need debtor-in-possession financing.) The company plans to keep delivering orders in full, is not planning to renegotiate any customer contracts except as they expire as usual, and is continuing to launch new products.
So if you are a user of my favorite textbook, rest assured that it is business as usual.