McClatchy asks bankruptcy judge to set July 23 sale deadline, hints at consolidation
McClatchy Co. has asked a bankruptcy judge to set a July 23 deadline to approve a buyer, as new court filings raise the prospect of consolidation with another large media chain.
Lawyers and financial advisers representing the company also asked the court to extend the bankruptcy process for up to 120 days as negotiations over a potential restructuring continue.
This week’s filings lay out the dual-track plan being pursued by McClatchy as it seeks to exit bankruptcy as fast as possible while still intact. One track could end in a blockbuster sale of the nation’s second largest local news company. The other involves a Chapter 11 restructuring that could leave it in the hands of a hedge fund that is among its largest creditors.
The flurry of developments came ahead of a Thursday hearing on the sale process, which effectively outlines a new roadmap for dissolution of a company founded more than 160 years ago.
The filings suggest that McClatchy expects to receive bids from other large media companies interested in consolidation. That could trigger monopoly concerns, leading to a Justice Department review.
After consolidations, only four major players remain in the legacy local news industry: McClatchy, Tribune Publishing, Gannett Co. and MediaNews Group.
McClatchy’s original Chapter 11 plan, filed in mid-February, envisioned a restructuring that would wipe out 55 percent of the company’s debt. The plan called for Chatham Asset Management to lead the new company.
As part of that plan, a court-appointed mediator was tasked with settling differences among McClatchy, its lenders and the Pension Benefit Guaranty Corp., which takes on pensions from distressed companies.
After two months of mediation, initial settlement proposals were exchanged last week, an apparent sign of movement.
Now, the company is asking Judge Michael E. Wiles to allow up to 120 more days for approval of a restructuring plan. The full extension would not necessarily be needed, especially if all parties agree on a sale.
Even as restructuring talks continued, McClatchy and its biggest creditors announced in April that they would also begin the process of selling the company, with those creditors potentially taking over the company if bids did not exceed $300 million.
This week’s filings outline an array of potential outcomes derived from “a robust sale process” that anticipates an auction should multiple qualified bidders emerge.
The sales plan envisioned that initial expressions of interest from about 20 potential parties would be due this week. But the plan hit a bump last week when Wiles told McClatchy he wanted the company and its less protected creditors to agree on a sales process.
Wiles wanted to ensure that less protected creditors weren’t steamrolled by larger ones.
McClatchy’s filings this week were in response to Wiles’ order. The new timeline would set these deadlines:
- May 12: Initial bid deadline
- July 1: Final bids and good faith deposits due
- July 8: Auction
- July 15: Deadline to reach agreement with successful bidder
- July 20: Objections due
- July 23: Approval hearing.
Among the bid rules detailed in the new filings is a requirement that any potential new owner or owners declare whether they would assume the collective bargaining agreements in existence in several of its 30 newsrooms.
If not, the winning bidder would have to issue a statement “addressing post-closing terms and conditions of employment to be offered to unionized employees.” The rules would also require the bidder to detail how many current employees, by publication, it planned on retaining.
The company has not provided information on the interested parties, citing non-disclosure agreements. But the filings leave little doubt that large news chains, known as “strategic bidders,” are among the potential buyers, particularly as the coronavirus pandemic continues to take a toll on advertising revenue.
“In my opinion, the strategic bidders that operate in the newspaper industry appreciate that the only pathway to longevity is through consolidation, and accordingly, I would expect such bidders to be engaged in the process notwithstanding Covid-19,” Sean M. Harding, senior managing director of FTI Consulting and McClatchy’s appointed chief restructuring officer, said in a court filing.
“The industry’s movement towards consolidation predates the commencement of the debtors’ Chapter 11 cases, and the impacts of the Covid-19 pandemic are likely to accelerate such consolidation in order to ensure the survival of many industry players.”
Harding also made it clear that the pandemic has upended the bankruptcy calculations on all sides, including McClatchy’s operating revenues. He updated the company’s financial condition in a three-page section of the filing that was redacted, and cited coronavirus uncertainty in imploring the court to allow the sale process to move forward without further delay.
“At the time these Chapter 11 cases were commenced, and even at the second-day hearing on March 25, 2020, no one could have predicted these impacts with any certainty,” Harding wrote. “The situation continues to evolve on a daily basis, and the actual magnitude of the impact of Covid-19 on the debtors’ businesses could ultimately be worse than projected.”
As is often the case, the proposed rules call for a backup bidder in case the winner fails to deliver on financing or is thwarted by regulators.
Sacramento-based McClatchy’s holdings include the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram.
Editor’s note: This story has been updated to clarify two points: 1) The company’s original Chapter 11 restructuring plan calls for Chatham Asset Management to take ownership. 2) Under the sales process outlined in April, Chatham and Brigade Capital Management would potentially take control of McClatchy if no bid exceeds $300 million. Their agreement to do so is non-binding. (Updated May 7, 12 p.m. Eastern)
This story was originally published May 6, 2020 at 4:32 PM with the headline "McClatchy asks bankruptcy judge to set July 23 sale deadline, hints at consolidation."
