In recent days, the bankruptcy reorganization of McClatchy seemed to be speeding to a conclusion. The federal court judge handling the case last week set a July 1 deadline for bids, July 8 to open them and conduct an auction, and July 24 to decide who will run the company.
But on Monday, unsecured creditors said not so fast. The creditors, including a group of roughly 600 retired executives headed by former Knight-Ridder CEO Tony Ridder, asked the judge to consider giving them standing to sue McClatchy’s board and past and current top executives.
If successful, they could get payments of as much as $118 million, according to the company’s actuarial projections. Ridder would stand to get $5.3 million and Gary Pruitt, retired McClatchy CEO and now president and chief executive of the Associated Press, $14.5 million.
They are raising an allegation that was made days after the filing by the Pension Benefit Guaranty Corporation — an arm of the federal government funded by participating corporations that pays beneficiaries when a pension plan fails — which will be taking over an insured plan covering 24,000 McClatchy workers and retirees.
The claim is that the company, along with Chatham Asset Management, McClatchy’s largest creditor, did a debt restructuring in April 2018 at a time when the company was already insolvent — essentially committing fraud.
Chatham holds almost all McClatchy’s secured debt and the largest block of its stock — and so has the inside track to end up running the company as its debts are being dissolved.
With another hedge fund, Brigade Capital Management, Chatham has indicated that it will make a bid valued at “well in excess of $300 million.”
I am not going to guess how the judge will rule or whether the motion will delay resolving the future ownership and direction of the company’s 30 newspapers, which include the Miami Herald and The Kansas City Star.
There is no reason to think that the plan for the bankruptcy reorganization, filed in mid-February, will ultimately fail to go through. It will end 163 years of McClatchy family control of the company, dissolve the board and render the company’s stock worthless.
The claim of the retired executives is a side issue but a piquant one — as its operations continue to experience cuts and furloughs.
At the start of this year, McClatchy abruptly stopped a regularly scheduled payment of the supplemental executive pension — essentially a generous bonus perk to top-level editors, publishers and corporate officers that dates to flush times for the industry. It covered executives of Knight-Ridder, which McClatchy acquired in 2006, as well as its own.
Ridder told me in the spring that the group considers the payments a legal obligation. And while he and many others are well-fixed, the supplemental pension has been a big source of retirement income for others.
His group sought and was granted a seat on a committee of unsecured creditors owed payments on real estate, supplies, professional fees or other debts.
Their motion this week names family members and others on the board, CEO Craig Forman and several current and past executives.
Since the start of the bankruptcy reorganization, McClatchy has assigned Washington bureau investigative reporter Kevin Hall to cover each new development in detail. His latest stories are here and here.
Rick Edmonds is Poynter’s media business analyst. He can be reached at email@example.com.
More from Poynter
- Seven news outlets in the McClatchy chain will move out of their offices for the rest of the year (June 9)
- Two hedge funds have offered to buy McClatchy. A sale could follow in the next two months — but there are hurdles. (April 28)
- McClatchy’s bankruptcy is another body blow to the journalism industry (Feb. 14)
- McClatchy files for bankruptcy protection to shed debt and reorganize. Key details remain to be negotiated. (Feb. 13)
- McClatchy stiffs retired executives on a scheduled pension payment (Jan. 2)
This article has been updated.