McClatchy reaches tentative deal with creditors that clears opposition to proposed sale
McClatchy Co. and Chatham Asset Management told a federal judge Monday that they have reached a tentative agreement with less-protected creditors on a deal that removes opposition to the sale of the company and clears the way for an exit from bankruptcy.
“Peace in the valley has broken out,” Van C. Durrer II, the lead bankruptcy lawyer for McClatchy, said at the start of an unscheduled afternoon hearing before Judge Michael E. Wiles.
After months of acrimonious negotiations, the less-protected creditors had been expected to oppose the sale to Chatham during a hearing Tuesday. Instead, Wiles will be presented with a unified front in favor of the sale as well as an agreement on the broad outlines of a plan to exit Chapter 11 bankruptcy.
The agreement is “a good message to send to employees and customers and readers of all the debtor’s newspapers,” Kristopher M. Hansen, the lead lawyer for the unsecured creditors committee, told the judge. “This way we hope to help stabilize the business as we move from here to exit in obviously pretty troubled times.”
The agreement sets up a trust through which the less-protected, or unsecured, creditors can pursue their claims. These include the Pension Benefit Guaranty Corporation, the federal agency expected to take over administration of the company’s qualified pension plan, as well as former executives who lost their supplemental pensions.
The trust will be funded in three ways: with cash from the sale, with more than 77% of an anticipated 2020 tax refund and with settlements of any claims brought against former McClatchy officers and board members related to a disputed 2018 debt restructuring. Most corporations, including McClatchy, carry insurance to cover lawsuits against officers and directors.
Chatham would be free from any claims as the new owner of McClatchy. And fees for lawyers and advisers, which had surpassed $10 million through June alone, would be capped going forward.
The deal effectively binds the parties together with a goal of getting to the finish line quickly. The bankruptcy process, which was originally expected to take less than 90 days, is now in its seventh month.
“Everybody worked tirelessly to get there, and everybody ends up getting effectively what they want,” Hansen said.
As part of the deal, an asset purchase agreement filed with the court last week will be modified to reflect that any claims against Chatham would transfer over in the sale and be extinguished, but with a catch, known as a clawback. If Chatham backs away from the agreement, the claims would become viable again.
Much of what will be presented to the judge Tuesday was envisioned back in February, when McClatchy entered bankruptcy with hopes of quickly negotiating what is known as a restructuring support agreement.
Lawyers for Brigade Capital Management, which holds about $111 million of McClatchy’s first-lien protected debt, have said little during the bankruptcy process. But at the close of Monday’s hearing, attorney Doug Mannal said Brigade is “pleased that the parties have come to resolution here.”
Wiles, who sits on the U.S. Bankruptcy Court for the Southern District of New York, was generally supportive of the compromise but asked that Tuesday’s presentation be, in part, a disclosure statement. He said he wants to ensure that the details of the sale are clear to everyone.
The parties told Wiles that they plan to close the sale by the first week of September, with a restructuring plan submitted to the court by the end of that month, at the latest.
McClatchy and Chatham, a New Jersey hedge fund, announced terms of their $312 million sale agreement on July 24. Chatham agreed to swap $263 million in debt owed by McClatchy into an ownership stake and $49.2 million in cash.
Chatham will transfer all employees to the new company and honor current collective-bargaining agreements, according to the asset purchase agreement. CEO Craig Forman and Kevin McClatchy, chairman of the board and a member of the founding McClatchy family, will depart.
Chatham will name a new CEO and a new board.
One other qualified bid was submitted. Alden Global Capital, owner of Denver-based MediaNews Group, sought an emergency hearing shortly before the July auction to disqualify portions of Chatham’s bid, but Wiles rejected the attempt.
Alden, whose backup bid called for cutting as many as 1,000 jobs from the new company, did not file a new objection before last Wednesday’s deadline.
McClatchy owns news organizations in 14 states and Washington, D.C., including the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram.
This story was originally published August 3, 2020 at 6:29 PM.
