McClatchy: America’s Second-Largest Local News Company – Files for Bankruptcy

McClatchy Co. is hoping that the recent Chapter 11 bankruptcy filing will allow the company to restructure its debts (forgiving approximately 60% of all debt) and release much of its current pension obligations. If the court accepts the offer, the new owners would be those heading the hedge fund: Chatham Asset Management LLC.

They would operate McClatchy as a private organization, and over 7 million shares of McClatchy’s current publicly owned and family-owned stocks would be “canceled.” According to our Las Vegas bankruptcy lawyers, longstanding pension programs have been causing financial troubles for many established companies throughout the U.S.

Local Newspaper Printing Press

An Unsustainable Pension Program Lead to Debt

McClatchy has been a family-run company for over 160 years since the California Gold Rush. Obviously, the company attempted to avoid filing for Chapter 11 but saw no other alternative at this point. “We’ve tried to avoid this step,” shared CEO Kevin McClatchy, “[but] 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.” McClatchy’s pension covers more than 24,500 current and future retirees, many who manned printing presses or loaded newspapers onto delivery trucks. That number is supported by less than 2,800 current, active employees. The math is not sustainable.

Revenues Continue to Drop as Debt Relief Agreements Stall

The publisher has 30 local newsrooms in 14 states, including the Miami Herald, the Charlotte Observer, the Kansas City Star, and the Fort Worth Star-Telegram. Revenues are currently 14% from last year, maintaining a decline for the past six years.

McClatchy Co. attempted negotiations with creditors last year and twice reached agreements that would have saved the company from bankruptcy. However, the final portion of the plan that involved agreeable financing terms was never agreed upon by all parties involved, thus the current situation.

The new owners will face many of the same issues that McClatchy Co. faced. Anthony Campagna, the director of research for ISS EVA, a company that provides analytical data and market intelligence to possible investors, stated: “There’s probably economies of scale that have to happen in an era where much less people are reading print media.” Regardless of who owns McClatchy Co., that fact remains.

Other Avenues of Debt Relief Fall Short Leading to Bankruptcy Filings

McClatchy has outstanding debt of over $700 million (at the time of filing), not to mention the pensions, which were valued at over $800 million.

Although McClatchy Co. sought pension relief from Congress, the Secure Act (a retirement-security package) was signed earlier this year. The act gave smaller papers 30 years to catch up with pension obligations, relieving them from needing to choose between creditors and bankruptcy. While this sounds like it would benefit McClatchy Co., the Secure Act quickly became a partisan battlefield, with representatives arguing against allowing the longer payback window (even at a higher interest rate.)

Strangely (as many political decisions are), relief was granted to a dozen small newspapers but not to McClatchy Co.