Sacramento-based McClatchy said in a press release on Thursday announcing it will file for Chapter 11 bankruptcy that it will continue to operate as it seeks to alleviate its debt and retirement obligations in Ontario. hope to quickly become a private enterprise.
McClatchy's announcement does not specify who would be its new majority owner, the Chatham Asset Management hedge fund, instead referring to Chatham as its largest secured creditor.
But the details in hundreds of pages of documents associated with the filing show how Chatham used multiple financial transactions to exercise increasing control over the business, to the point where he partnered with McClatchy on a bankruptcy plan which it was finalized and approved by the court, manual control of the company at the hedge fund.
In a sign of possible complications ahead, the Federal Benefit Pension Guaranty Corp. raised concerns in a bankruptcy case Friday regarding a 2018 financial transaction between Chatham and McClatchy and asked the court to investigate. The deposit was first reported by McClatchy's Washington office.
McClatchy, chaired by President and CEO Craig Forman, has requested a bailout of his retirement obligations of $ 530 million from the federal agency, which intervenes to provide benefits to employees including sector pension plans. private fail.
In bankruptcy files, McClatchy's management describes the extremes it has gone to in trying to get out of the debt it contracted in buying Knight Ridder as its century-old business model collapsed.
From the 2006 to 2018 acquisition, McClatchy cut operating expenses by almost 60%. By mid-2019, it had cut full-time workers by 82% since the time of the transaction - layoffs of journalists, editors, photographers and other employees across the country - from 15,378 to 2,800. at the same time, advertising revenue fell 80% and total daily print circulation fell 59%.
Due to the divergent fortunes of regional newspapers and national titles such as the New York Times - which now has 5 million digital subscribers - McClatchy continued to search for cost savings that he could find all of last year.
It has saved an additional $ 41 million through a new round of downsizing. In February of last year, it offered early retirement plans to 450 employees. It centralized advertising operations and continued to outsource printing to third parties. He sold commercial real estate in Miami and Kansas City, which are home to the Herald and the Kansas City Star.
The company has also increased its number of digital subscribers only to 220,000, more than double what it was two years ago, in an attempt to emulate some of the success that The Times, The Wall Street Journal and the Washington Post found online.
It was not enough. McClatchy still has $ 703 million in debt outstanding, largely the result of poor business decisions.
"The newspapers are obviously in trouble, but there is $ 700 million in debt and only $ 14 million goes to sellers," said Eric Snyder, chairman of the bankruptcy department of Wilk Auslander. "They do what they do because the lenders have piled up debt on this business and they don't get paid. "
To keep his previous creditors at bay, McClatchy had to find new lenders, and last year he found a willing partner in Chatham, New Jersey, who signed an agreement that put McClatchy's proposed reorganization in movement.
Chatham, who declared $ 4.4 billion in assets in 2019, is no stranger to the information industry, but his reputation has not been rewarded by supporters and employees of McClatchy.
Chatham founder Anthony Melchiorre has been called "a barefoot fighter in business relationships" who "has sunk into betting against the tide over the years and has remained loyal to them," according to an industry publication. Pensions and investments.
Chatham is also the majority owner of American Media Inc., the parent of the racy tabloid National Enquirer. MAI President David Pecker worked with President Trump's attorney Michael Cohen to bury allegations of Trump's extramarital affairs and the publication threatened to publish intimate photos of Amazon founder and owner of the Washington Post, Jeff Bezos.
In March of last year, McClatchy agreed to borrow recently from Chatham to avoid debt to other lenders, the documents said. McClatchy then agreed to allow Chatham to convert part of its "unsecured" debt to "secured" debt, giving it a head start over other creditors in the bankruptcy process. Chatham also holds 23.7% of the company's shares.
In his bankruptcy announcement, McClatchy said he had reached an agreement with Chatham on transactions that would deprive the company of its rights. Kevin McClatchy, chairman of the board of directors of McClatchy and great-great-grandson of the founder of the company, said in the statement that handing over his family business was "a necessary and positive step for the business."
But a number of obstacles remain. In his announcement, McClatchy briefly noted what could be a disagreement over how the business will be run in the future, as the parties "continue to negotiate the final details on governance and senior management."
At AMI, Chatham has held two of the four board seats and other hedge funds have been more aggressive about taking seats on the boards of declining newspaper companies - positions that journalists or former journalists previously occupied. The newly formed Gannett, supported by investments from private equity giants Fortress Investment Group and Apollo Global Management, has a nine-member board of directors without journalists.
By purchasing Tribune Publishing shares, the hedge fund Alden Global Capital won two seats on the board of directors.
The bankruptcy judge could challenge Chatham's move to other creditors, said Snyder, in addition to considering some 22,000 pensioners. He did not expect the plan to be implemented as proposed.
"I think the court is going to want to know more about how the PBGC claims will be handled and see what McClatchy will receive in exchange for allowing Chatham to convert this debt," he said.
Meanwhile, McClatchy is taking on more debt - a $ 50 million revolving credit facility - to cover the costs of the company throughout the bankruptcy process, according to the filings.