Bankruptcy court approves McClatchy’s mediation request, fueling hope of resolution
A federal bankruptcy judge on Tuesday ruled that McClatchy Co. can enter mediation with its creditors in two weeks, keeping alive hopes of a timely restructuring of the nation’s second-largest local media company while giving a key government agency time to look into a transaction it has questioned.
McClatchy, which has said it wants to emerge from bankruptcy within 60 days, had asked that mediation begin immediately. The Pension Benefit Guaranty Corporation, which would take over the company’s pensions if the judge approves McClatchy’s restructuring plan, sought up to a month to examine the transaction.
Judge Michael E. Wiles effectively split the difference and set a March 4 date for mediation to begin.
Wiles told the parties in a Tuesday hearing held via phone that a rush to mediation could infringe upon the right of other groups to be heard, including the PBGC. The agency has not yet backed McClatchy’s proposal to hand over administration of the plan.
But the judge said the longer delay sought by the PBGC would interfere with McClatchy’s ability to quickly exit bankruptcy.
“I get the sense there is a little bit of both [haste and delay] here,” Wiles said in explaining his split decision.
The judge ordered the PBGC, McClatchy and its largest creditors, led by the hedge fund Chatham Asset Management, to agree on a mediator by Friday. McClatchy and its creditors had earlier suggested James M. Peck, who retired from the bankruptcy court in New York in 2014.
The PBGC and McClatchy were also ordered to agree by Friday on what information is to be submitted to the agency about the 2018 debt restructuring. If they cannot agree, Wiles said he will decide for them.
The complex transaction allowed McClatchy to push back the maturity of debt owed to Chatham but also moved Chatham ahead of other creditors, including the PBGC, in case of default.
Van C. Durrer II, a lawyer representing McClatchy, told Wiles on Tuesday that a speedy resolution of the bankruptcy is imperative.
“I don’t really understand what is in dispute here,” he argued, adding that there “are economics that are tied to time, as you would expect, and … [a delay is] just going to result in a worse deal for everybody.”
The PBGC’s deputy general counsel, Kartar S. Khalsa, argued that a speedy move to mediation should come only when there is more agreement.
“We are simply trying to set this case on the track it should be on, rather than a track that would not be appropriate, where there are so many unresolved issues,” Khalsa said.
Under a nearly completed deal presented last week to Wiles, who sits on the U.S. Bankruptcy Court for the Southern District of New York, Chatham would assume control of McClatchy. The deal would cancel nearly 7 million shares of company stock and turn McClatchy into a privately held media company.
About 55 percent of the company’s debt would be extinguished, and the McClatchy family would relinquish ownership of the company it founded 163 years ago in Sacramento, Calif.
Lawyers for creditors and McClatchy told the judge last week that they expected to have in place by Tuesday a Restructuring Support Agreement, known as an RSA. This development, which generally includes plans for new management, signals that most of the main hurdles to emerging from Chapter 11 bankruptcy are cleared.
There was no mention of an RSA in Tuesday’s hearing. A spokeswoman for McClatchy declined to comment after the hearing.
Also Tuesday, a law firm representing 5,000 newspaper carriers asked to join the proceedings. Wiles accepted a motion to allow an attorney for Anthony P. Ridder, former chairman and chief executive of the Knight Ridder newspaper chain, to join as well.
McClatchy purchased Knight Ridder in 2006 for $4.5 billion, assuming $2 billion of the larger chain’s debt and its pension obligations. Ridder is part of a group of mostly former executives and top management of Knight Ridder whose supplemental pensions were frozen in January.
The PBGC now protects the pension benefits of about 37 million Americans and is funded through insurance premiums paid by businesses and by the assets it receives and recovers from failed plans.
In 2012, the agency pushed back against American Airlines when it tried to hand over its pension obligations in bankruptcy. The airline backed off and instead froze its pension plan.
A year later, the PBGC filed a $97 million lawsuit against The Renco Group Inc., alleging that it evaded pension obligations through a sale of a steel company to an investment firm, which was closely followed by bankruptcy.
The pension obligations were eventually restored to Renco through a settlement in 2016, only the second time that had happened since creation of the PBGC in 1974. Renco had to repay the agency for the benefits it funded in the interim and resumed responsibility for the steelworker pensions.
McClatchy owns 30 properties in 14 states, including the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram. The company’s journalists have won more than 50 Pulitzer Prizes.
This story was originally published February 18, 2020 at 3:18 PM with the headline "Bankruptcy court approves McClatchy’s mediation request, fueling hope of resolution."
