The debt-laden Sacramento, Calif.-based company made the announcement today at the same time as it revealed it had obtained a $50 million loan from asset-based lender Encina Business Credit to help it stay afloat during this period and keep all of its 30 local newsrooms, including the Kansas City Star, open. It also owns the Fort Worth Star-Telegram, The Sacramento Bee and The Charlotte Observer.
Like many of its competitors, the 163-year-old family-controlled, publicly traded publisher has struggled to keep its head above water as print readerships plummet. While it has made some progress in digitizing its brands (growing its digital-only subscriptions by almost 50 percent year-over-year), this has not been nearly enough to turn its fortunes around. In addition, staff cuts have failed to have the desired impact on the company’s finances.
It has also had a hard time meeting its pension obligations, with its pension plan assets totaling $1.39 billion, including approximately $580 million of voluntary contributions made by McClatchy. It is in negotiations with the Pension Benefit Guaranty Corp. about the federal body taking over the pension plan.
In bankruptcy filings, McClatchy explained that the company’s significant leverage and contingent pension exposure “render it impossible” for it to participate in the industry consolidation that has become inevitable for local news outlets. It was left saddled with a lot of debt following the 2006 merger with the larger Knight Ridder newspaper chain, which is how it became the owner of The Miami Herald.
Instead, it hopes that its restructuring plan will eliminate approximately 55 percent of its total funded debt and help it to emerge from bankruptcy in a few months as a private company. Bankruptcies can take one of several paths — in a best-case scenario and the one that McClatchy is employing, the business works out arrangements in advance to pay creditors and develop a restructuring plan.
Kevin McClatchy, chairman of McClatchy’s board and great-great grandson of the company’s founder, said, “This restructuring is a necessary and positive step forward for the business, and the entire board of directors has made great efforts to ensure the company is able to operate as usual throughout this process.”
Craig Forman, its president and ceo, added, “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.”
McClatchy’s financial burden was laid bare in its third-quarter results ended Nov. 13. McClatchy reported a net loss of $304.7 million, or $38.43 per share, compared to net income of $7 million, or 90 cents per share in the same period of 2018.
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