Nation’s Second-Largest News Company Files Bankruptcy, Cites Congress ‘About-Face,’ Pension Debt
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On Thursday, the nation’s second-largest news company, McClatchy Co., filed for bankruptcy. The move, a report on the decision published by McClatchy Thursday states, will end family control of the company and “hand it to creditors who have expressed support for independent journalism.”
The two key reasons the 163-year-old news company cites for filing for bankruptcy are its debts and pension obligations.
“The Chapter 11 filing will allow McClatchy to restructure its debts and, it hopes, shed much of its pension obligations,” investigative reporter Kevin G. Hall explains in the report. “Under a plan outlined in its filing to a federal bankruptcy court, about 60 percent of its debt would be eliminated as the news organization tries to reposition for a digital future.”
“While this is obviously a sad milestone after 163 years of family control, McClatchy remains a strong operating company and committed to essential local news and information,” McClatchy Chairman Kevin McClatchy said. “While we tried hard to avoid this step, there’s no question that the scale of our 75-year-old pension plan – with 10 pensioners for every single active employee – is a reflection of another economic era.”
The filing comes after “months” of fighting to avoid the move, with the company pursuing “multiple regulatory and legislative avenues to address its pension and debt obligations before turning to the bankruptcy process,” Hall reports.
One of the turning points for the news company came a few weeks ago, when Congress, “in a last-minute about-face,” chose to exclude McClatchy from newspaper pension relief “that would have prevented the company from having to choose among paying bond holders, meeting pension requirements or seeking bankruptcy protection.”
If the court accepts McClatchy’s bankruptcy agreement, the plan is for hedge fund Chatham Asset Management LLC to take over and operate it as a privately held company. “More than 7 million shares of both publicly available and protected family-owned stock would be canceled,” Hall notes.
The move, said CEO Craig Forman, will enable McClatchy to undergo a “digital transformation” in order to continue to provide “independent local journalism.”
“In this important moment for independent local journalism in the public interest, a stronger capital structure will enable McClatchy to continue to pursue our strategy of digital transformation and continue to produce strong local journalism essential to the communities we serve,” said Forman.
Also, the documents submitted to the U.S. Bankruptcy Court for the Southern District of New York confirm that the Sacramento-based chain twice last year reached agreement on terms in separate strategic transactions “that would have delevered the business.”
But in both cases, it said, “McClatchy was unable to come to agreeable terms on financing, leaving the transactions unexecutable.” (Industry experts have widely reported that it was Tribune Co., the owner of the Chicago Tribune and other mastheads, that had been in talks about combining with McClatchy.)
“McClatchy’s bankruptcy underscores the grim reality facing the local news industry amid profound transformation in its business and revenue model,” writes Hall. “More than 2,000 newspapers ceased production in the last 15 years, according to a recent think-tank report from the Brookings Institution.”