Federal agency says it will assume McClatchy pension plan if bankruptcy judge signs off
The government agency responsible for assuming the pension obligations of distressed companies said this week that it will take on McClatchy Co.’s plan if a bankruptcy judge determines that the local news company won’t survive otherwise.
The court filing by the federal Pension Benefit Guaranty Corp. was among several key developments this week as the company seeks to exit Chapter 11 bankruptcy.
In another, McClatchy’s deadline for accepting initial bids from interested buyers passed at one minute before midnight Tuesday, triggering the next phase of bankruptcy proceedings that the company had hoped would be over by now.
But that was before the Covid-19 crisis, which upended the global economy and slowed the company’s negotiations with creditors, scrambling its restructuring plans.
McClatchy has said that at least 20 potential buyers signed non-disclosure agreements to look into the finances of the nation’s second largest local news company. It hinted in previous filings that it expected multiple offers in a process that set a July 24 deadline for bankruptcy Judge Michael E. Wiles to approve a buyer.
A spokeswoman for McClatchy declined to say Wednesday how many parties submitted an initial bid. The deadline for final bids is July 1.
The pension agency’s filing was the first public statement of its intentions. McClatchy has said that an inability to meet its legacy pension obligations was the chief reason it sought bankruptcy protection.
“Based on the information available, PBGC does not object to the debtors’ distress motion,” the agency said in concluding its 15-page filing.
The so-called distress termination of McClatchy’s administration of its pensions is scheduled for discussion at a broader May 19 omnibus hearing in the U.S. Bankruptcy Court for the Southern District of New York.
In the filing, lawyers for the PBGC reminded Wiles of strict rules that allow pension plans to transfer to the government agency only if a company cannot pay its creditors, has exhausted all workarounds and is unable to survive without shedding its pension obligations.
“The court may thereby determine that termination of the pension plan is necessary for the debtors to generate enough cash flow to meet obligations under any feasible plan of reorganization post-emergence,” the PBGC lawyers wrote.
The filing effectively told the judge that the PBGC has yet to reach its own conclusions about McClatchy’s financial condition but would abide by his ruling. In mid-February, the agency said it was examining whether McClatchy’s largest creditor improperly restructured the company’s debt in 2018 to improve its position in the event of bankruptcy.
Tuesday’s PBGC filing was silent on those allegations, which have been denied by both McClatchy and Chatham Asset Management, the hedge fund that stands to assume control of a restructured McClatchy under the original reorganization plan.
McClatchy’s exit from bankruptcy is proceeding on two tracks — the reorganization proposal, which is in court-ordered mediation, or a sale, which could include an auction if multiple bidders emerge.
PBGC lawyers detailed their view of McClatchy’s pension situation for the judge, writing that McClatchy had about $1 billion in unfunded pension benefit liabilities.
In exchange for terminating the pension plan, any reorganized company would owe the PBGC a “termination premium” of about $30 million per year for three years, the filing says.
When McClatchy filed its bankruptcy plan in February, with Chatham emerging as the proposed new owner, it offered to pay the PBGC $3.3 million annually for 10 years and give it a 3 percent stake in the new company.
It’s unclear in filings whether the company has agreed to the PBGC’s higher premium. It’s also not clear how a sale of the company rather than a reorganization might affect the amount of any payment to the agency.
As McClatchy fought to avoid bankruptcy in 2018 and 2019, it restructured its debt and twice attempted to merge with a large media group, widely reported to be what was then known as Tribune Co., now Tribune Publishing. The pension obligation made it impossible to obtain financing for those deals, lawyers for McClatchy have said in bankruptcy proceedings.
Late last year, the company sought pension relief from Congress but was denied.
That was the final straw. In January, McClatchy suspended supplemental pension payments to former executives of McClatchy and Knight Ridder, the large chain purchased by McClatchy in 2006.
Days later, it entered an agreement with the PBGC to suspend all pension contributions for a month.
Then, on Feb. 13, McClatchy, which has operated since the California Gold Rush era, filed for bankruptcy.
As of Jan. 1, 2019, the McClatchy and Knight Ridder pensions covered 24,056 total participants, of which only 1,704 were active employees, the PBGC’s filing says. Of the remaining 22,352 participants, roughly half were already receiving benefits and the other half will receive deferred benefits when they reach retirement age.
McClatchy froze its defined-benefit plans in March 2009, amid the Great Recession, and stopped enrolling new employees.
Defined-benefit pension plans harken back to an era in labor-intensive American businesses, where mostly blue-collar workers, usually represented by unions, were promised fixed benefit payments in retirement, often in lieu of salary increases, to ensure employee loyalty. These benefit plans were common in auto manufacturing, steel production and the newspaper industry, which in its pre-digital heyday required printing presses run by ink-stained pressmen as well as warehousing and distribution operations.
Today, companies large and small offer defined-contribution plans in which employees can set aside money in tax-deferred investment accounts for their retirement. Many companies offer to match those contributions up to a certain percentage.
In another court filing Tuesday, McClatchy asked the judge to set deadlines for new claims to be brought against the company as it seeks to emerge from bankruptcy as quickly as possible. It wants to close the door to new claims from private parties on June 26, and from government entities on Aug. 10.
The court also received a “statement of position” from the mayor of Sacramento, where McClatchy is headquartered, asking Wiles to keep a broader value in mind as he handles the potential sale of the company and its hometown paper, the Sacramento Bee.
“I would urge the bankruptcy court to consider what’s best for our community and the larger Central Valley when weighing the competing bids for ownership of The Sacramento Bee and the rest of the McClatchy papers,” Mayor Darrell Steinberg wrote, echoing concerns that McClatchy could join other major chains now in the hands of hedge funds and private equity firms whose primary concern is profits.
“We seek to ensure that The Bee and McClatchy’s other California papers emerge from this process with California owners motivated primarily by a desire to serve the public interest, not the bottom line.”
Noting that McClatchy operates 30 newsrooms in 14 states, Steinberg added, “I call on the mayors and other elected officials of all the McClatchy cities to join me in demanding that the public interest of each market is considered when the court decides who will run the company when it emerges from bankruptcy reorganization.”
McClatchy’s holdings also include The Miami Herald, The Kansas City Star, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram.
This story was originally published May 13, 2020 at 4:04 PM.
