Bankruptcy judge approves the sale of McClatchy to hedge fund Chatham Asset Management
A federal bankruptcy judge approved the $312 million sale of McClatchy Co. on Tuesday, officially clearing the way for the nation’s second largest local news company to exit bankruptcy under the leadership of the hedge fund that had been its largest lender.
Judge Michael E. Wiles approved a sale order in a hearing that became all but a formality after McClatchy, Chatham Asset Management and less-protected creditors announced a compromise Monday to keep the sale on track.
In another key development Tuesday, the Pension Benefit Guaranty Corporation, the federal agency that takes over pension plans from distressed companies, told the judge that it will assume McClatchy’s plan.
Chatham, which manages $4.4 billion in assets from its New Jersey home base, will continue to operate all 30 of McClatchy’s news organizations and will transfer most senior management and all employees to the new company.
That stands in contrast to the backup bidder, Alden Capital Group, which proposed to cut around 1,000 jobs, a court filing shows.
Chatham also agreed to honor existing collective-bargaining agreements. CEO Craig Forman and board chairman Kevin McClatchy, a descendant of the founder, will depart when the sale process concludes in September.
“We look forward to completing the transaction expeditiously so that McClatchy can continue to focus on the important journalism on which local communities depend,” Chatham, which has been an investor in McClatchy since 2009, said in a statement.
The purchase agreement calls for the sale to close in early September, subject to approval from Wiles, who sits on the U.S. Bankruptcy Court for the Southern District of New York.
After a 30-day transition period, the new company will cut all ties with the founding McClatchy family, which has been in control for 163 years. Chatham purchased the McClatchy name along with the other assets of the company.
Chatham will assemble a board of directors and name a chief executive for the new company, which will be privately held. No timetable for those decisions has been announced.
At a July 10 auction, Chatham turned $263 million of the company’s debt into what is known as a credit bid and added nearly $49.2 million in cash.
McClatchy will emerge from bankruptcy having shed nearly 60 percent of debt owed to lenders. The company carried about $703 million in debt into bankruptcy; the new company will hold nearly $290 million in debt.
The new company also will be free of the legacy pension obligation as well as $118 million in supplemental pensions for former executives that were paid from the operating budget.
“This is a major milestone towards McClatchy’s successful resolution of its court-supervised reorganization process and towards the sustainability of independent local journalism in the 30 communities that we serve,” Forman said. “As McClatchy transitions with a strengthened capital structure, the company will be well-positioned to accelerate the digital transformation our team has worked so hard to achieve.”
The compromise reached Monday, ahead of the approval hearing, was significant. A committee of less-protected creditors agreed to creation of a trust through which claims can be settled. It will be funded by cash from the sale along with most of an anticipated 2020 tax refund. Any proceeds from successful insurance claims against McClatchy directors and officers during a disputed 2018 debt restructuring will also go into the trust.
“The committee supports the sale,” Kristopher M. Hansen, a lawyer for the unsecured creditors, told the judge Tuesday, a low-key ending to more than five months of difficult negotiations.
Among the less-protected creditors were a group of former executives and senior leaders from McClatchy and Knight Ridder, which McClatchy acquired in 2006. They had been receiving supplemental pensions beyond what is backed by the government, and McClatchy cut off those payments in January.
McClatchy filed for Chapter 11 bankruptcy Feb. 13 with the hopes of exiting within 90 days. But the company was unable to reach agreement on a restructuring plan and, in April, added a second path to exit: selling the company at auction.
Wiles has presided with a firm hand, encouraging mediation and insisting that doors remain open to any challenges by creditors.
McClatchy’s case has played out under unusual circumstances. A lockdown of New York City as the coronavirus raged forced the parties from the courtroom in lower Manhattan to the internet and the telephone, creating difficult conditions for the mediation.
So, it seemed fitting that, at the start of Tuesday afternoon’s hearing, Wiles told the lawyers he was presiding from his home office by flashlight as the remnants of Tropical Storm Isaias roared through, cutting off his electricity.
“I can deal with the lack of power as long as a tree doesn’t fall on my house,” he quipped.
McClatchy operates local news organizations in 14 states and Washington, D.C., including the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram.
This story was originally published August 4, 2020 at 4:05 PM with the headline "Bankruptcy judge approves the sale of McClatchy to hedge fund Chatham Asset Management."
