Sacramento-based newspaper publisher McClatchy announced it has filed for voluntary Chapter 11 bankruptcy today, providing immediate protection to the company as it undergoes restructuring.
Through the bankruptcy filing, McClatchy reported it will further de-lever its capital structure and focus on its digital transformation.
The company’s 30 local newsrooms will continue to operate as normal and it will continue to fulfill ongoing commitments to stakeholders through regular operating cash flows and an additional $50 million 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,” stated Craig Forman, president-CEO at McClatchy.
“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.”
The company hopes to complete this process over the coming months.
In January, McClatchy put a portion of its pensions on hold, including nonqualified Supplemental Executive Retirement Benefits, after revealing it owned $124 million in pension contributions in 2020. That amount exceeded anticipated cash balances and flow.
McClatchy will use its bankruptcy status to work with the Pension Benefit Guaranty Corporation (PBGC) and, through the Bankruptcy Court’s authority, seek to terminate its qualified pension plan, appointing PBGC as the plan’s trustee.
Going forward, PBGC would continue to pay pension plan participants their benefits. McClatchy will pay PBGC $3.3 million each year for 10 years and 3% of equity ownership of the company to settle its liabilities.PBGC has requested a larger stream of cash payments and a larger percentage of equity ownership in the company. The parties continue to negotiate.
McClatchy’s qualified pension plan assets sit at an estimated $1.393 billion and include approximately $580 million of voluntary contributions made by McClatchy.
McClatchy has also alerted the NYSE American of its filing and expects to begin the process of removal from the exchange, as it will likely emerge a private company. McClatchy NYSE status was put on notice in September 2019.
With the news of its bankruptcy filing, McClatchy also announced it expects its Q4 2019 revenues to fall 14%, to $183.9 million, from the Q4 2018 and full-year revenues to drop 12.1% from 2018 to 709.5 million.
The company has reduced its operating expenses by 23.3% or $186.9 million over the past three years, as it worked to stabilize cash flow. During that period, McClatchy paid off approximately $153.5 million in debt.
As it looks toward its digital future, the company reports more than 200,000 digital-only subscribers and continues to grow digital-only subscriptions 50% year-over-year. Digital advertising revenues currently account for 40% of its total advertising revenues.Forman stated: “In this important moment for independent local journalism in the public interest, a reorganized capital structure will enable McClatchy to continue to pursue our strategy of digital transformation and continue to produce strong local journalism essential to the communities we serve.”