Looking Smart

For a time, Barry O'Callaghan fancied that he looked quite smart in his tailored suits, pockets bulging with debt.

In the wake of a financial crisis that some claim they saw coming, the Irishman doesn't look quite so brilliant. He's about to take an enormous loss on his scheme to create the biggest educational publishing materials corporation, and he's not so popular in the home country either. Anglo-Irish Bank is holding a sizeable portion of his debt and now those losses have devolved to the Irish taxpayers.

The plan is now to convert debt into equity to avoid a bankruptcy. Should first and second lien debt-holders not go along with the plan, there is an alternative in the works. A 60-day brush with bankruptcy and the little minnow will emerge strong like the mighty whale it swallowed. HMH-Riverdeep-EMPG will, it is hoped, survive.

All the synergies realized, all the restructuring, and still Mr. O'Callaghan couldn't keep up appearances. Looked smart enough to convince Davy Stockbrokers to recommend an investment, but those who took the facade for a sound structure will be left with nothing but a stake in the international segment of EMPG, along with a hope that they might recover some money should HMH-Riverdeep-et al. show some profit in the future.

John Paulson's hedge fund, which purchased a large part of the $7 billion debt, will end up as the majority shareholder. He's quite happy with Houghton Mifflin Harcourt, seeing it as a strong and going concern. Whether or not Mr. O'Callaghan will continue to steer the good ship HMH will depend on Mr. Paulson and the new board that he will control. The same goes for the fate of HMH.

Nothing like a going concern in one's pocket when searching for items to pawn during financial difficulties.