BARRY O’CALLAGHAN’S heavily-indebted Education Media Publishing Group (EMPG) has cancelled the sale of its consumer books unit after considering the strength of three tentative offers for the business.

The cancellation of the sale by the Irish-backed business came as its lenders agreed to relax convenants on $6.8 billion (€5.27 billion) of debt, a move that will give the company more flexibility to maintain investment in its product as the business navigates recession in the US market.

Still in the balance is whether EMPG continues with efforts already under way to reduce its overall indebtedness by engaging in a debt-for-equity transactions with some of its lenders. Although any such transaction would strengthen the company’s balance sheet, it would also dilute the equity in the business held by Irish clients of Davy stockbrokers and other investors.

EMPG was formed from the reverse takeover by Mr O’Callaghan’s Irish-based education software firm Riverdeep of Boston education and literary publisher Houghton Mifflin. The enlarged firm later bought Harcourt, the consumer publishing unit of Reed Elsevier.

Chaired by Mr O’Callaghan, EMPG put its trade and reference division Houghton Mifflin Harcourt on the market in January with a notional price of about $300 million (€232.33 million). It is unclear, however, whether indicative offers from the three suitors fell short of this target. The unit accounts for some 3 per cent of EMPG’s annual profit.

In a note to EMPG staff yesterday, Mr O’Callaghan said the company had entered into an amendment to its credit agreement on Thursday which implements modified terms on its loans.

Mr O’Callaghan had asked Apollo, BlackRock and Guggenheim Partners to replace a requirement that EMPG’s debt at March 31st be no more than 8.75 times its earnings before interest tax depreciation and amortisation (Ebitda) with a looser multiple of 9.95 times Ebitda. He also wanted the company to be allowed up to 7.45 times leverage by the end of March 2010 instead of 6.5 times.

Agreement to these terms was reached at a cost of a 0.25 per cent amendment fee and a 300 basis point (three percentage point) rise in what EMPG pays on its debt. That had previously stood at the London interbank offered rate (Libor) plus 400 basis points.

Mr O’Callaghan informed staff that EMPG’s business plan “did not anticipate” covenant issues this year.