Chatham Asset Management wins McClatchy court auction

Consolidation and financialization in the time of Covid-19

The first daily of the McClatchy group, The Sacremento Bee Photo via InternetMcClatchy
The first daily of the McClatchy group, The Sacremento Bee Photo via Internet

On 13 July 2020l, McClatchy announced that the auction on 10 July held as a part of its court-supervised sale process concluded with the successful bid of Chatham Asset Management. The terms of the proposed agreement are to be filed with the US Bankruptcy Court and confirmed by the court on 24 July. McClatchy will “transition out of Chapter 11 as it entered it: in its totality, as one company serving 30 communities across America,” said an announcement from Sacramento-based McClatchy.

It is expected that McClatchy will exit Chapter 11 protection in Q3 of 2020. According to McClatchy, the proposed agreement has a resolution and restructuring plan for the company’s complex legacy debt and pension obligations. It expects that the Pension Benefit Guaranty Corporation (PBGC) will assume The McClatchy Company Retirement Plan. McClatchy is contributing an estimated US$ 1.4 billion in pension assets to the PBGC.

The agreement will be subject to court confirmation, currently scheduled for a hearing on 27 July, and customary regulatory approvals and other closing conditions. New Jersey-based hedge fund Chatham is McClatchy’s biggest creditor. Federal judge Michael E Wiles rejected a challenge to Chatham’s bid by a second hedge fund, New York-based Alden Capital Group.

As we wrote at the time, McClatchy, the second-largest publisher of newspapers in the United States by circulation, voluntarily filed for bankruptcy protection under the country’s Chapter 11 law on 13 February 2020. The Sacramento-based publisher listed on the New York Stock Exchange and each of its 53 wholly-owned subsidiaries filed their voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York. The group has received US$ 50 million (approximately Rs. 375 crore) debtor-in-possession financing from Encina Business Credit. These events took place substantially before the Covid-19 pandemic further depleted circulation and advertising revenues of US dailies.

Begun in 1857 with a 4-page paper in Sacramento, that ultimately became The Sacramento Bee, McClatchy publishes the Miami HeraldThe Kansas City StarThe Charlotte Observer, the (Raleigh) News & Observer, and the Fort Worth Star-Telegram among many other newspapers across 14 states.

McClatchy said it expected 2019, Q4 revenues of US$ 183.9 million, down 14% from the same quarter in the previous year. According to business media reports, its 2019 revenue is expected to be 12.1% lower than the previous year – the sixth consecutive year of declining revenues.

The company’s 30 local newsrooms are expected to continue to operate while it pursues approval of a debt restructuring plan with its secured lenders, bondholders, and the Pension Benefit Guaranty Corporation. According to the company’s press release, the company aims to emerge from this process in the next few months.

“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 chief executive officer in the company’s press release. Forman has over the past three years, considerably transitioned the group to digital.

The press release adds, “McClatchy has made significant progress in its digital transformation in the past three years. As the second-largest US local newspaper company, McClatchy has grown its digital-only subscriptions by almost 50% year over year and is now roughly evenly balanced between total audience and advertising revenues, with digital accounting for 40% of those revenues and growing, a much healthier distribution for an increasingly digital era. The Company has more than 200,000 digital-only subscribers and well over 500,000 paid digital customer relationships.

Analysts have commented that the restructuring of the McClatchy newspaper company is a further step in the financialization of the newspaper industry in the US where few family-owned newspaper groups remain. They have also raised questions about what steps Chatham will take to save some of the leading dailies and most respected newsrooms of the group and return the business to viability and profitability.

The Covid-19 pandemic led to the country-wide lockdown on 25 March 2020. It will be two years tomorrow as I write this. What have we learned in this time? Maybe the meaning of resilience since small companies like us have had to rely on our resources and the forbearance of our employees as we have struggled to produce our trade platforms.

The print and packaging industries have been fortunate, although the commercial printing industry is still to recover. We have learned more about the digital transformation that affects commercial printing and packaging. Ultimately digital will help print grow in a country where we are still far behind in our paper and print consumption and where digital is a leapfrog technology that will only increase the demand for print in the foreseeable future.

Web analytics show that we now have readership in North America and Europe amongst the 90 countries where our five platforms reach. Our traffic which more than doubled in 2020, has at times gone up by another 50% in 2021. And advertising which had fallen to pieces in 2020 and 2021, has started its return since January 2022.

As the economy approaches real growth with unevenness and shortages a given, we are looking forward to the PrintPack India exhibition in Greater Noida. We are again appointed to produce the Show Daily on all five days of the show from 26 to 30 May 2022.

It is the right time to support our high-impact reporting and authoritative and technical information with some of the best correspondents in the industry. Readers can power Indian Printer and Publisher’s balanced industry journalism and help sustain us by subscribing.

– Naresh Khanna

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