McClatchy Newspapers File for Chapter 11 Bankruptcy Protection

Daniel Fowler
February 14, 2020

The company hopes to emerge from bankruptcy protection in a few months as a private company, with majority ownership by a hedge fund that's now McClatchy's largest shareholder and debtholder, Chatham Asset Management. The news isn't a surprise to the company's workers: Last year, McClatchy announced it didn't have almost enough money to pay out the pensions it owes to former employees.

The bankruptcy proceeding would also allow McClatchy to address some $800 million in unfunded pension obligations.

The newspaper industry has been deeply hurt by changing technology that has sent the vast majority of people online in search of news.

"In 2010, the total revenue for print ads fell below 1950 levels, and it has continued to decrease, " said Penny Abernathy, the Knight chair of journalism and digital media economics at the University of North Carolina. The company has more than 200,000 digital-only subscribers and more than 500,000 paid digital customer relationships.

"The greatest crisis in American journalism is the death of local news", Baquet said at the International News Media Association World Congress at the time. That has led to a string of consolidation, much of it involving investment firms, deepening concerns about declining quality as newsrooms shrink and papers close.

Gannett, the largest United States newspaper publisher, agreed previous year to a merger with rival GateHouse in a deal aiming for bigger scale to face the challenges of the troubled sector.

Yesterday, Bloomberg News released an ominous report of the current state of Newspapers in America.

The case, filed early Thursday, is being heard in U.S. Bankruptcy Court for the Southern District of NY.

Essential shutting down after not being able to finish Project GEM
The company said it would cease business operations because it has "no clear path" to delivering its next products to customers. The company thanked the employees, staff members and other community members for showing passion for our vision .

"[But] when a large chain says we're going to emerge from bankruptcy stronger and more digital, these are red flags".

The company, the country's second-largest newspaper chain, has secured $50 million in debtor-in-possession financing from Encina Business Credit. For full-year 2019, revenues are expected to be $709.5 million, down 12-percent from 2018 with advertising revenues of $337.1 million and audience revenues of $321.8 million. McClatchy said its digital-only subscriptions have grown nearly 50% to 200,000 over the past year.

Yet the migration to digital publications has not offset the loss of advertisers that once relied on newspapers.

In court documents, McClatchy said 40% of its revenue now comes from digital sources.

"It's not because of how they cover or don't cover national news, it's not because of what the president says about them, it's because Google and Facebook and Craigslist have taken all their advertising away", he said.

McClatchy has struggled to pay money owed to its pension fund and has been in negotiations with the Pension Benefit Guaranty Corporation, a federal guarantor of pensions, to assume control.

What they're saying: "While we tried hard to avoid this step, there's no question that the scale of our 75-year-old pension plan - with 10 pensioners for every single active employee - is a reflection of another economic era", Kevin McClatchy, the company's chairman, said in a statement.

If creditors and the bankruptcy court accepts McClatchy's reorganization plan, Chatham Asset Management, a New Jersey hedge fund with $4.5 billion in assets that already owns a stake in McClatchy, would operate McClatchy as a private company.

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