While heavy debt loads forced Houghton Mifflin Harcourt and Reader’s Digest to completely overhaul their finances, Haights Cross Communications is struggling to find a way to re-pay a loan that was due August 17. The company announced Monday that it was using a 30-day grace period to try to complete an exchange offering it is working on with notesholders that would satisfy terms of the loan. Nevertheless, Standard & Poor’s lowered its rating on Haights’ 11.75% senior notes to “D” from “C,” observing that “we view the company’s higher leverage, factional coverage of gross interest expense, negative discretionary cash flow, limited liquidity and weak operating outlook together as indications of financial distress.”
In its own press release, Haights said if the exchange offering is not approved, it will be forced to consider alternative options, include filing for Chapter 11. Meanwhile the operating performance of the company’s two main units, fell in the second quarter. Sales at Recorded Books slipped 2.7%, to $20.8 million, and the spokenword audio publisher’s operating income dipped to $6.1 million from $6.4 million. During the quarter, Haights said it completed its restructuring of Recorded Books that included eliminating 19 positions. The decline in second quarter revenue was attributed to a drop in sales in the library channel, including in the U.K., and in the school market partially offset by a 32% increase in the retail channel. For the six-month period, sales declined 12%, to $39.4 million, and operating income fell to $10.1 million from $11.6 million. In Haights’ Test-prep and intervention segment, sales fell 26%, to $15. 6 million in the quarter, and 17.8% in the first six months, to $41.2 million. Income fell in both periods as well.