Swets Bankruptcy Recalls Fallout from RoweCom

In a case that has drawn comparisons to the RoweCom/Faxon Library Services bankruptcy almost 12 years ago, the court of Amsterdam on Friday, September 19 granted Netherlands-based Swets & Zeitlinger Group permission to suspend payments to its creditors, and on Tuesday, September 23 accepted a bankruptcy filing from the group’s subsidiary—global subscription management provider Swets Information Services
Swets logoIn a case that has drawn comparisons to the RoweCom/Faxon Library Services bankruptcy almost 12 years ago, the court of Amsterdam on Friday, September 19 granted Netherlands-based Swets & Zeitlinger Group permission to suspend payments to its creditors, and on Tuesday, September 23 accepted a bankruptcy filing from the group’s subsidiary—global subscription management provider Swets Information Services. A statement released by the company on September 24 noted that “the bankruptcy of the Swets Information Services B.V. does (for now) not affect its (foreign) subsidiaries as the bankruptcy is only related to Swets Information Services B.V. If and in which way the bankruptcy of Swets Information Services B.V. will affect its branches is currently under investigation.” [update: On October 1, parent company Swets & Zeitlinger Group also declared bankruptcy.] However, several publishers, including Elsevier, Springer, and SAGE, last week sent e-mails to North American libraries, urging them to check the status of any recent orders placed with Swets, to submit FY 2015 subscription payments directly to publishers, or to choose another subscription agency. “It is clear to Springer that customers are exposed to a substantial risk if they continue to submit payments to Swets for any Springer content, regardless of whether it is journal subscriptions, ebooks, licenses or any other products. Springer has terminated its contracts with Swets,” read one such letter. The company’s financial problems do appear to be serious. Swets Group closed FY 2013 with a net loss of €51.1 million, causing the company’s equity to decline to negative €41.6 million, according to an annual report published in August. The report notes that the company continues to be dependent on external financing, but that: “As per the end of 2013 as well as per the end of Q1 and Q2 2014, Swets Group failed to meet its covenant requirements related to the long-term financing. As a consequence of this breach the syndicate and Intermediate Capital Group (both indicated as 'the lenders') are entitled to demand immediate repayment. At the moment of signing of the financial statements 2013, the lenders have not accelerated repayment of any of the loans. Since Swets Group is currently unable to fulfill such a potential demand, there is a material uncertainty regarding the continuity of Swets Group and its subsidiaries.”

Preparing for problems

Given this “material uncertainty” regarding the future of the company or the outcome of the bankruptcy, libraries that have already submitted payments to Swets for FY2015 should engage with their university’s legal counsel and billing department regarding the status of those orders, librarians and vendors contacted for this story uniformly suggested. “Work with your organization’s businesspeople,” said Ann Campion Riley, associate director for access, collections, and technical services at the University of Missouri libraries, and president-elect of the Association of College and Research Libraries (ACRL). “What we’re doing at the University of Missouri is working with our legal counsel and our procurement office to follow university policies and do the best we can.” In a September 29 post to the North American Serial Interest Group (NASIG) Serialist listserv that she authorized LJ to reprint, Susan Davis, acquisitions librarian for continuing resources for the University of Buffalo, State University of New York (SUNY), suggested that libraries “start planning for alternative means to renew their subscriptions.” Emphasizing that she was not offering legal advice, Davis added that libraries should consider collecting information about all of their library’s subscriptions using the Swets online procurement and subscription management tool Swetswise, taking note of any titles that have been authorized for renewal and whether Swets has generated any invoices for those subscriptions. “I do not know what financial obligations you have for those renewals (in terms of creditors claiming those as ‘assets’ to be considered in any settlement) because I am not a lawyer and therefore offer no legal advice,” she wrote. “I’m recommending that librarians be prepared to take the steps necessary to gather as much information about their own accounts, status of renewals and other orders, and any financial transactions by the library, and then make whatever decisions best fit your own circumstances going forward.”

RoweCom reminders

The circumstances that led to this bankruptcy are different from those that led to the problems at RoweCom in 2002 and 2003. RoweCom stunned its customers in December 2002 when it disclosed that it had not been able to place or make payments for a “substantial majority” of its customers’ 2003 orders, and accused its parent company—dot-com crash casualty divine, inc.—of siphoning more than $73 million in RoweCom assets to fund its other business divisions. RoweCom later sued divine for fraud. When the company filed for bankruptcy in January 2003, official estimates of lost subscription money ranged as high as $80 million for U.S. libraries. Ultimately, many publishers—although not all—helped libraries off the hook by assuming the role of creditors in the bankruptcy via subrogation, explained Sue Wiegand, periodicals librarian for Saint Mary’s College in Notre Dame, IN, who wrote or co-wrote several journal articles about the impact of the RoweCom bankruptcy, including “Creatively Coping with Your Subscription Agent’s Bankruptcy” for The Serials Librarian. “For us, it was not as bad as we originally thought it would be,” Wiegand told LJ. “The only [subscriptions] that we didn’t get were from publishers that didn’t participate in that…. The publishers were the ones that really took a hit.” Still, she added that she had talked to libraries that lost their entire periodicals fund for the year in 2003. Working directly with publishers to replace issues that were not delivered by RoweCom was time consuming, and it became complicated sorting through which publishers were participating in subrogation, which were not, and which were not participating, but were gracing subscriptions (continuing to provide access even after subscriptions expired) until the case was decided. A combination of caution and good fortune helped at Saint Mary’s. Aware that RoweCom had been having financial difficulties, the library held its renewal payments as long as possible. As a result, some of the library’s subscription funds were simply redirected after the bankruptcy was announced. Once the publishers took over in the bankruptcy case, Wiegand kept careful documentation of affected subscriptions and kept in contact with the college’s dean and legal counsel. “It was a matter of keeping track of what we were missing,” she said. “And I knew a lot of librarians were using Duplicates Exchange to get things from other libraries. Various publishers sent a lot of the issues…. What I tried to do was an evaluation of what we actually had and what we could cancel…. We did actually get most of our stuff, but it was pretty traumatic at the time.”

Points of difference

In contrast to the accusations of fraud at RoweCom, the problems at Swets appear to be linked to the company’s failure to adjust quickly enough to long-term market trends. The annual report blamed negative results on “the continued market shift from print to digital subscriptions, particularly among large publishers.” The average gross profit margin for commissions on digital subscriptions is about 4.4 percent, compared with 10.5 percent for print subscriptions, and Swets has seen print subscriptions decline from 34 percent of its sales in 2011 to 26 percent in 2013. Meanwhile, “digital formats have also facilitated large publishers to establish direct customer relationships, resulting in partial customer losses,” the report adds. Timing is another key point of difference. Most of RoweCom’s customers learned the extent of the company’s problems long after subscription payments had been submitted for FY 2003. By contrast, many Swets customers have not yet submitted payments for next year. “The bottom line was most customers had paid RoweCom, and most publishers were not paid. In the case of the Swets bankruptcy, most customers have not paid Swets,” Allen Powell, president of the Subscription Services Division of EBSCO Information Services and Sam Brooks, executive VP of Marketing, Sales, Publisher Relations and Strategic Partnerships for EBSCO Information Services wrote to LJ in an email interview (click here for full transcript). “This is good news. Although time is very short, librarians still have the opportunity to select another agency with whom to place their orders.” Executives from WT Cox Information Services and Wolper Information Services agreed, and all three subscription agencies affirmed that they had the capacity to take on new customers. “It’s still early in the process,” said Michael Cox, president and CEO of WT Cox. “For any of the Swets customers who haven’t sent their money in, there’s still plenty of time to place orders for 2015.” Yet the end of the calendar year is approaching, and many subscription orders must be placed within the coming weeks to ensure subscription continuity if a library chooses to switch subscription agents, noted Susan Wolper, president and CEO of Wolper Information Services. Like Davis and Wiegand, Wolper encouraged Swets customers to begin by gathering and reviewing information about their current Swets subscriptions. “They should work to get their lists together—get them from their existing vendor if that information is still available to them online,” Wolper said. “They need to know what they have renewed, and whether the vendor has already paid for those orders.” Brooks and Powell suggested that libraries who are concerned about the financial stability of subscription agents or other vendors “would benefit from researching the financial stability of all major vendors as part of their buying decision. This research could include a review of key financial ratios such as debt to equity, consulting credit rating resources like D&B (which provide financial ratings on vendors for a nominal fee) and seeking publisher references.”
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