July 12, 2020

McClatchy announced Sunday morning that its longtime lead lender, hedge fund Chatham Asset Management, has won the auction to buy the company out of Chapter 11 bankruptcy reorganization.

The deal still requires court approval, likely at a hearing July 24. A sale price was not immediately revealed but will be as the deal is finalized.

Unsecured creditors including the Pension Benefit Guaranty Corporation and a group of retired executives who contend they are due supplemental bonuses have objected and said that the company and Chatham engaged in a “fraudulent transfer” when refinancing debt in 2018.

Judge Michael Wiles did not rule last week on their request to be given standing to sue but indicated that he will soon.

Chatham has had the inside track to emerge with the company, whose 30 papers include the Miami Herald and The Kansas City Star, since the bankruptcy filing in February.

In fact, you could see this result coming as early as fall 2018. As I reported then, Chatham had assembled both a majority of McClatchy’s debt and a 20% share of its stock.

The stage was set for the McClatchy family to relinquish control and put the company into bankruptcy. They chose to do so after failing to get a waiver from the Internal Revenue Service or the PBGC for pension payments due this year that the company would be unable to make.

Chatham also controls American Media Inc., which includes the National Enquirer (which it announced in April 2019 had been sold — though the transaction has never closed). It also has a controlling interest in Postmedia, a large Canadian chain.

Chatham has managed each with a light hand. And since it has been in a position to influence decisions in McClatchy for some time, my guess is that deep cuts or other radical action once it owns the company are not likely.

In a press release announcing the action, CEO Craig Forman said, “From the outset of this voluntary Chapter 11 filing, our aim was to permanently address both the Company’s legacy debt and pension obligations and strengthen our balance sheet in order to provide greater certainty and stability. … We’re pleased that Chatham and the supportive secured first-lien creditors believe in our business and our mission and are helping to achieve these goals.”

Forman also said that the company anticipates the PBGC — an arm of the federal government funded by participating corporations rather than tax dollars that steps in to pay beneficiaries when a pension plan fails — will take over its insured pension plan, which covers roughly 24,000 current and former employees.

McClatchy took on $2.6 billion in debt when it bought the Knight Ridder chain in 2006 and has been burdened with big interest payments and paying down the loans in the years since.

With that debt and its pension liabilities gone, the company is positioned to operate profitably, albeit with smaller newsrooms and other cuts in executive staff and operating expenses. The pandemic-related ad slump will make that more difficult in the short run.

The Chatham controlled-company could sell one or several of its papers, as McClatchy did after the Knight Ridder acquisition. However, there is no particular likelihood it will choose that course.

The other confirmed bidder for the company was Alden Global Capital, notorious for its tight-fisted management of the MediaNews Group chain. The Miami-based Knight Foundation explored making a bid and taking the company nonprofit but ultimately decided not to do so.

Rick Edmonds is Poynter’s media business analyst. He can be reached at redmonds@poynter.org.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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