McClatchy publishes the Miami Herald, The Charlotte Observer,The Kansas City Star and the Forth Worth Star-Telegram among its stable of 29 newspapers.
Media analyst Craig Huber, founder of Huber Research Partners, estimated that McClatchy's free cash flow will be less than $20 million next year. That won't be enough to cover a mandatory $124 million contribution to its pension plan, according to Bloomberg.
S&P Global Ratings estimated McClatchy will run out of money by September, while downgrading its corporate debt rating even further. McClatchy's pension plan is underfunded by about $535 million.
McClatchy's principal debt totaled $709 million as of the end of September, while its cash holdings were a paltry $11.4 million. The company recently cut back on printing Saturday editions of its newspapers to contain costs.
Chatham Asset Management is the biggest holder of McClatchy debt and would help decide what to do with McClatchy in a bankruptcy filing. Ideally, it would devise a way to preserve the company as a going concern, instead of breaking it up, closing newspapers and throwing thousands of workers out on the street.
More likely, the newspapers would find buyers in a court-supervised sale and continue to operate with healthier balance sheets.
It's also possible that McClatchy's pension will be handed off to the Pension Benefit Guaranty Corporation, a federal agency that acts as a backstop to pension plans of companies in dire financial straits. When Lehman Brothers went bankrupt in 2008, my pension plan was handed off to the PBGC — I really have little idea of what happened to the money.
I recently reactivated my online account at the PBGC to see if there were any interesting updates about the plan's status. I'm waiting for more information to arrive in the mail. I've fretted over reports that the PBGC will need a taxpayer-funded bailout to cover its growing financial obligations to retired workers.
McClatchy employees may want to familiarize themselves with the federal agency, especially if it ends up overseeing their financial futures.