McClatchy Co. filed for bankruptcy Thursday, a move that will end family control of America's second largest local news company and hand it to creditors who have expressed support for independent journalism.
The Chapter 11 filing will allow McClatchy to restructure its debts and, it hopes, shed much of its pension obligations. Under a plan outlined in its filing to a federal bankruptcy court, about 60% of its debt would be eliminated as the news organization tries to reposition for a digital future.
The likely new owners, if the court accepts the plan, would be led by hedge fund Chatham Asset Management LLC. They would operate McClatchy as a privately held company. More than 7 million shares of both publicly available and protected family-owned stock would be canceled.
"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," said Kevin McClatchy, chairman of the company that has carried his family name since the days of the California Gold Rush. "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 has no immediate impact on McClatchy's employees or its 30 newsrooms in 14 states, including the Kansas City Star, the Miami Herald, the Charlotte Observer, the Fort Worth Star-Telegram and the Sacramento Bee. The company said it has secured $50 million in new financing from Encina Business Credit to ensure it can continue to operate while in bankruptcy and hopes to emerge with its balance sheet equipped for the future.
McClatchy executives fought for months to avoid Thursday's filing; the company pursued multiple regulatory and legislative avenues to address its pension and debt obligations before turning to the bankruptcy process.
Negotiations with creditors intensified late last year. In addition, just weeks ago, Congress -- in a last-minute about-face -- excluded 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.
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.)
"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 Craig Forman, McClatchy's chief executive officer.