S.D. New York Chapter 11: The McClatchy Company

On February 13, 2020 (the ” Petition Date “), The McClatchy Company (“McClatchy” or “the Company”) and fifty-three of its affiliates (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.

 

The Debtors are represented by Skadden, Arps, Slate, Meagher & Flom LLP and Togut, Segal & Segal LLP as co-counsel, and Groom Law Group as special counsel. The case has been assigned to the Honorable Michael E. Wiles. A hearing on the Debtors’ first day motions was held on February 14, 2020. A meeting to form the unsecured creditors’ committee has been scheduled for February 26, 2020.

Headquartered in Sacramento, California, McClatchy is a 163-year-old family-controlled company that provides independent local journalism to thirty communities in fourteen states through its local newspapers, including the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer, The (Raleigh) News & Observer, and the (Fort Worth) Star-Telegram. McClatchy also provides a full suite of digital marketing services through its digital agency, excelerate®, as well as niche publications and community newspapers. Its media companies range from large daily newspapers and news websites serving metropolitan areas to non-daily newspapers with websites and online platforms serving small communities.

 

The Company argues that the recession commencing in 2007 and the impact of internet journalism and alternative digital advertising sources have collectively undermined the revenue model of the entire news industry, with local news outlets particularly hard hit as news and advertising are no longer distributed and sold according to geographic location. The Company states that between 2006 and 2018, its advertising revenues fell by 80%. In addition, paid print circulation volume and print audience have steadily decreased over the same period with total daily print circulation falling by 58.6%.

 

McClatchy has responded to these trends by exploring synergies through purchases or sales, implementing a business plan that focuses on a shift to digital news circulation, subscriptions, and advertising, and implementing cost-cutting initiatives. The Company has considered several transactions that would benefit from economies of scale and synergies, reaching agreement on the terms of two separate transactions in the last year which would have de-levered the business. However, agreeable terms were not reached in either case, with the Company’s debt and pension obligations as impediments. The Company has taken all steps to avoid termination of the pension plan but despite their efforts, the plan’s projected required contributions greatly exceed the Company’s projected EBITDA.

 

The Company’s board decided to commence the solicitation of a restructuring plan among certain lien noteholders, the Pension Benefit Guaranty Company (“PBGC”), and its largest debt holder, Chatham Asset Management, LLC (“Chatham”), which the Company did immediately prior to commencing the chapter 11 cases, at which point the board also resolved to seek a distress termination of the pension plan. The plan, which will result in a deleveraging of the Company’s total funded debt by approximately 55%, provides that certain lien noteholders will be exchanged for new lien notes in the principal amount of approximately $218 million, carrying an interest rate of 10% per annum ( See Sean M. Harding Affidavit in Support ).

As of the Petition Date, the Debtors estimate approximately $531.3 million is owed in lien notes and $157.1 million in a loan from The Bank of New York Mellon Trust Company, N.A. and a group of its affiliated lenders. The Company also has $14.9 million outstanding in unsecured debentures between Knight-Ridder, JP Morgan Chase Bank, N.A., and the Bank of New York Trust Company, N.A. The Company’s other unsecured obligations are unspecified, but total over  $9.6 million in amounts due to vendors.

As of February 12, 2020, the Company decided to enter into a credit agreement with Encina Business Credit, LLC, and a group of lenders for which it acts as an administrative agent. The Debtors seek approval of an aggregate principal amount of $50,000,000 which will be used for working capital purposes during the cases, including the funding of its administrative expenses, and to satisfy the outstanding prepetition obligations and to cash collateralize certain obligations. The Debtors are seeking approval of an extension of credit of $12,500,000 until the entry of the final order, and, at the final hearing, will seek authorization for an extension of credit of the full $50 million. The Debtors are also seeking cash collateral for a thirteen-week budget of $20,113,000.