February 13, 2020 − The McClatchy Company and 53 affiliated Debtors (NYSE American: "MNI," “McClatchy” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-10418. The Debtors, the operator of 30 media companies in 14 states, are represented by Shana A. Elberg of Skadden, Arps, Slate, Meagher & Flom LLP. Further board-authorized engagements include (i) Togut, Segal and Segal as bankruptcy co-counsel, (ii) the Groom Law Group as special counsel to assist on pension matters, (iii) Evercore Group L.L.C. as investment banker, (iv) FTI Consulting, Inc. as financial advisors and (v) Kurtzman Carson as claims agent.
The Debtors’ lead petition notes more than 100,000 creditors; estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $1.0bn and $10.0bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Pension Benefit Guaranty Corporation ("PBGC") ($530.4mn), (ii) Bank of New York Mellon ($14.9mn) and (iii) Gannett Supply Corporation ($1.6mn)
In a press release announcing the filing, the Debtors advised that “The Chapter 11 filing provides immediate protection to the Company, which will continue to operate in the ordinary course of business as it pursues approval of the restructuring plan with its secured lenders, bondholders, and the Pension Benefit Guaranty Corporation (PBGC).
The assets of McClatchy's qualified pension plan are estimated at $1.393 billion as of the filing, including approximately $580 million of voluntary contributions made by McClatchy, substantially greater than the contributions required by law.
McClatchy has advised the NYSE American of the filing. Since the Company does not anticipate emerging as a public company, but rather as a private company, it expects the NYSE American and the Company will begin the process to remove its listing from the exchange."
Craig Forman, the Debtors' President and Chief Executive Officer, added: "McClatchy's Plan provides a resolution to legacy debt and pension obligations while maximizing outcomes for customers and other stakeholders. When local media suffers in the face of industry challenges, communities suffer: polarization grows, civic connections fray and borrowing costs rise for local governments. We are moving with speed and focus to benefit all our stakeholders and our communities.
While there is still more work to be done, we are pleased with the progress to date, and are appreciative of our ongoing dialog with our lenders and the PBGC. Moreover, we expect there will be no adverse impact on qualified pension benefits for substantially all of the plan's participants and beneficiaries."
Status of PBGC Negotiations
On January 14, 2020, the Debtors (see 8-K) entered into a Standstill Agreement (the “Agreement”) with the PBGC relating to the Debtors' qualified defined benefit pension plan (“Pension Plan”) and the minimum required payments due on January 15, 2020 (the “Payment Date”). Pursuant to the Agreement, the PBGC agreed not to exercise the remedies available to despite the Debtors' failure to make a required payment on the Payment Date. Under the Agreement, the PBGC agreed to a forbearance period until February 18, 2020 (the “Forbearance Period”), unless terminated earlier, subject to customary terms and conditions.
The current press release notes: "The terms of the Plan represent the Company's good faith proposal to restructure its existing obligations. As previously announced, the Company has been negotiating such proposals with its largest stakeholders for some time. Certain issues, summarized below, represent the most recent bargaining position of certain of those parties.
- First, while the PBGC has not indicated that it disputes that the qualified pension satisfies the standards for termination, the PBGC has requested a materially larger stream of cash payments over ten years and a materially larger percentage of equity ownership in the Company in settlement of the PBGC's claims relating to termination of the qualified pension plan; and
- Second, the parties continue to negotiate the final details surrounding governance and senior management.
In order to enhance the likelihood that the parties can achieve a consensual resolution, McClatchy has requested that the Bankruptcy Court approve procedures for an independent mediator to be appointed to facilitate and supervise the parties' continuing restructuring negotiations."
Debtor-in-Possession ("DIP") Financing
The Debtors have obtained new $50.0mn of DIP financing from Encina Business Credit.
Plan Summary
The Company's Plan, which, along with the Company's Disclosure Statement, has already been submitted to creditors for approval, provides:
- The Company's existing First Lien Notes will be exchanged for new first lien notes in an amount not more than a principal balance of $218.0mn, secured by the same collateral, having the same maturity and accruing interest at a rate of 10% per annum;
- The Company's largest holder of secured debt, including First Lien Notes, the loans made under the Company's Junior Lien Term Loan Credit Agreement dated as of July 16, 2018 (the "Second Lien Term Loans"), and the 6.875% Senior Secured Junior Lien Notes due 2031 (the "Third Lien Notes") will receive $81.0mn of secured debt subordinate to the new first lien notes in exchange for a portion of its existing First Lien Notes and a commitment to provide the Company with $30.0mn of exit financing (such subordinated debt to accrue payment-in-kind interest of 12.5% or cash-pay interest of 10%, depending on the Company's ratio of leverage to adjusted EBITDA);
- The Company's existing Second Lien Term Loans and Third Lien Notes will be extinguished in exchange for 97% of the equity ownership of the Company, subject to dilution for management incentives and certain warrants for up to 2.5% of the equity ownership of the Company;
- Certain creditors who are no longer part of the Company's go-forward operations will share, pro rata, in a pool of $3 million or warrants to acquire up to 2.5% of the equity ownership of the Company;
- The Company's existing equity will be cancelled; and
- The Company will seek the Bankruptcy Court's authority to terminate its qualified pension plan, and appoint PBGC as the plan's trustee. Under a plan termination, PBGC would continue to pay the Company's qualified pension plan participants their benefits, subject to federal statutory limits. Under current regulations, McClatchy believes that such a solution would not have an adverse impact on qualified pension benefits for substantially all plan participants. The Company proposes to settle its liabilities in connection with the qualified pension plan by paying PBGC $3.3 million from the Company each year for ten years and 3% of the equity ownership of the Company.
Equity Holdings
- Chatham Asset Management: 23.37% (Class A common stock)
- Bluestone Financial Ltd: 14.11% (Class A common stock)
- Omega Advisors, Inc.: 8.01% (Class A common stock)
- Bestinver Gestión, S.G.I.I.C.: 5.59% (Class A common stock)
- Leon G. Cooperman: 5.53% (Class A common stock)
About the Debtors
McClatchy operates 30 media companies in 14 states, providing each of its communities with strong independent local journalism in the public interest and advertising services in a wide array of digital and print formats. McClatchy publishes iconic local brands 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 is headquartered in Sacramento, Calif., and listed on the New York Stock Exchange American under the symbol MNI.
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