McClatchy files plan to close out bankruptcy case, prepares to emerge under new owner
McClatchy Co. filed a plan with the bankruptcy court Friday that outlines how the local news company that was controlled by its founding family for 163 years will be officially dissolved at a Sept. 23 hearing.
That date is two weeks after the new McClatchy is scheduled to begin operating under the ownership of the hedge fund that was its largest lender.
Chatham Asset Management won the bidding for the nation’s second largest local news company at auction in July, secured a judge’s approval in August for the $312 million purchase and is expected to close the deal by Sept. 4.
The “distribution plan” filed Friday details how the old McClatchy will settle its obligations to a committee of less-protected creditors and resolve dozens of administrative issues, closing out the bankruptcy case that began more than six months ago.
“The debtors believe that confirmation of the plan and consummation of the committee settlement is in the best interests of all their stakeholders and will provide for the efficient wind-down of these Chapter 11 cases,” McClatchy said in a disclosure statement that accompanied the plan.
Chatham offered jobs in the new company to all current employees, and McClatchy announced that CEO Craig Forman would step down when the sale closes. Tony Hunter, a former Tribune Co. executive, will become the new chief executive. Longtime board chairman Kevin McClatchy, a descendant of the company’s founder, is also stepping down.
Forman will receive accrued and unused vacation time and will be reimbursed for expenses, according to the exit plan and disclosure statement filed by McClatchy’s lawyers Friday.
Friday’s filings codify a compromise reached earlier this month among McClatchy, Chatham and a committee of less-protected creditors. The parties agreed to create a trust to pay creditors, and Friday’s filings noted that an administrator will be appointed and that the trust will be partially funded by an $11.7 million tax refund.
Chatham will put $400,000 into an escrow account for the trust when the sale closes and will add $600,000 after receipt of a 2020 tax refund. More than three-quarters of the remainder of the refund will also go to the trust. Any insurance settlements stemming from legal claims that could be brought by creditors against former directors and officers would also go to the trust to allow creditors to recover some of what McClatchy owed them.
Also Friday, McClatchy withdrew its request for Judge Michael E. Wiles to declare a “distressed termination” of its pension plan at a hearing next week. The Pension Benefit Guaranty Corporation, the federal agency that takes over pensions from distressed companies, has already agreed to assume the plan.
McClatchy filed for Chapter 11 bankruptcy in February and expected resolution within a few months. But the case dragged on and legal and advisory fees piled up, creating what lawyers described as one of the more expensive media cases ever in the U.S. Bankruptcy Court for the Southern District of New York.
McClatchy had spent nearly $21 million in legal and advisory fees through June 30, the company said this week in a quarterly filing with the Securities and Exchange Commission. That same filing painted a dire picture of the company’s second quarter: Advertising revenue was down almost 35 percent in the three months ending June 30, the quarter in which the coronavirus did its biggest damage to the U.S. economy.
“We continue to monitor the situation, to assess further possible implications to our business and customers, including the status of state and local government reopening plans and any potential recurrence of illness, and to take actions in an effort to mitigate adverse consequences,” the company said in the filing.
In a piece of good news, the company reported a 40.9% increase in digital-only subscribers to 261,300 through the end of June, compared to 185,500 in the same three months of 2019. McClatchy also disclosed that it qualified for pandemic relief under the federal CARES Act, allowing it to save $2.8 million by postponing required pension contributions for two years.
McClatchy operates 30 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 21, 2020 at 7:54 PM with the headline "McClatchy files plan to close out bankruptcy case, prepares to emerge under new owner."
