Newspaper giant McClatchy Co. has filed for Chapter 11 bankruptcy protection and said it expects to re-emerge as a privately held company with debt holders taking over the equity.
The publicly traded company — which owns the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer and 25 other newspapers in 14 states — had already suspended some of its pension payments to former executives last month.
McClatchy applied to the Pension Benefit Guaranty Corporation to take over its pension plan, which continued to make payments to most of its pensioners.
Under the Chapter 11 plan, the company said first-lien debt holders holding $218 million in debt will be exchanged for new, first-lien notes of a substantially reduced principal with a 10 percent interest rate. The debt holders would also get 97 percent of the equity in a newly reorganized company.
The plan also calls for the PBGC to take over the pension plan and for the newspaper publisher to give the board 3 percent of the equity in a newly reorganized company and make smaller pension contributions of $3.3 million a year to the PBGC for 10 years.
The company said it has obtained $50 million in debtor in possession financing from Encina Business Credit.
“McClatchy’s plan provides a resolution to legacy debt and pension obligations while maximizing outcomes for customers and other stakeholders,” said Craig Forman, president and CEO. “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 forward with speed and focus to benefit all our stakeholders and our communities.”
The 163-year-old company was founded in Sacramento, California, and current chairman Kevin McClatchy is the great-grandson of founder James McClatchy. In 2006, the company surprised the industry when it devoured the much larger Knight Ridder chain for $4.5 billion. It quickly sold off some of the papers for $1 billion but has continued to wrestle with debt left over from that deal.
The family foundation was the largest institutional shareholder while the hedge fund Chatham Asset Management emerged as one of its largest creditors.