HOUGHTON MIFFLIN Harcourt (HMH), second largest educational publisher in the world, has challenged a Moody’s downgrade of its credit rating, saying its leverage is lower than the agency estimated.

The first public comments from the group – led by Barry O’Callaghan and which grew out of Irish group Riverdeep – about its debt levels come after Education Media Publishing, its Cayman Islands-based parent, was named as one of the European companies at highest risk of default by Standard Poor’s, the rival rating agency.

A Moody’s report on December 22nd expressed concern, and warned of liquidity pressures and “a likely default” under its senior secured loan covenants unless these were amended.

“We take issue with the comments Moody’s made regarding our financial position,” HMH said, claiming the group was within its covenants. Another person familiar with the company confirmed, however, that the group was open to a sale of its consumer publishing arm, which shocked the publishing industry last month by announcing it would stop accepting new manuscripts.

HMH said the company expected double-digit growth in earnings before interest, tax, depreciation and amortisation for 2008.