NEW YORK, Feb. 13, 2020 /PRNewswire/ -- McClatchy Co. (NYSE
American-MNI) today announced it has commenced a voluntary
restructuring under Chapter 11 of the U.S. Bankruptcy Code
following the solicitation of a Plan of Reorganization ("the Plan")
among its key stakeholders. The Chapter 11 filing provides
immediate protection to the Company, which will continue to operate
in the ordinary course of business as it pursues approval of the
restructuring plan with its secured lenders, bondholders, and the
Pension Benefit Guaranty Corporation (PBGC).
McClatchy and each of its 53 wholly owned subsidiaries filed
their voluntary Chapter 11 petitions in the U.S. Bankruptcy Court
for the Southern District of New York. During the case,
McClatchy and its 30 local newsrooms are operating as usual.
The Company has obtained new $50
million debtor-in-possession financing from Encina Business
Credit which, coupled with McClatchy's normal operating cash flows,
provides ample liquidity for Sacramento-based McClatchy and all of its
local news outlets to operate as usual and fulfill ongoing
commitments to stakeholders. The Company aims to emerge from this
process in the next few months.
"McClatchy's Plan provides a resolution to legacy debt and
pension obligations while maximizing outcomes for customers and
other stakeholders," said Craig
Forman, President and Chief Executive Officer. "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 remains a strong operating company with an enduring
commitment to independent journalism that spans five generations of
my family,'' commented Kevin
McClatchy, Chairman of McClatchy's Board of Directors and
great-great grandson of the Company's founder, James McClatchy. "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. We are
privileged to serve the 30 communities across the country that
together make McClatchy and are ever grateful to all of our
stakeholders – subscribers, readers, advertisers, vendors,
investors, and employees – who have enabled our legacy to date. We
look forward to the continued success of such an outstanding group
of colleagues long into the future."
Progress in Improving the Business and Forging a Path
Forward
McClatchy has made significant progress in its digital
transformation in the past three years. As the second-largest U.S.
local newspaper company, McClatchy has grown its digital-only
subscriptions by almost 50 percent year over year, and is now
roughly evenly balanced between total audience and advertising
revenues, with digital accounting for 40 percent of those revenues
and growing, a much healthier distribution for an increasingly
digital era. The Company has more than 200,000 digital-only
subscribers and well over 500,000 paid digital customer
relationships.
In the three years ended in December
2019, McClatchy has reduced its operating expenses by
$186.9 million (or 23.3%) in its
efforts to stabilize operating cash flow amid secular industry
headwinds that have battered newspaper advertising revenues. This
focus on cash flow has allowed the company to pay off roughly
$153.5 million in debt in the same
period, while also focusing remaining resources on its digital
transformation and its journalism — earning two Pulitzer Prizes and
many other awards, most recently for the Miami Herald's coverage of
the Jeffrey Epstein scandal.
Forman continued, "In this important moment for independent
local journalism in the public interest, a reorganized capital
structure will enable McClatchy to continue to pursue our strategy
of digital transformation and continue to produce strong local
journalism essential to the communities we serve. While there is
still more work to be done, we are pleased with the progress to
date, and are appreciative of our ongoing dialog with our lenders
and the PBGC. Moreover, we expect there will be no adverse impact
on qualified pension benefits for substantially all of the plan's
participants and beneficiaries."
The assets of McClatchy's qualified pension plan are estimated
at $1.393 billion as of the filing,
including approximately $580 million
of voluntary contributions made by McClatchy, substantially greater
than the contributions required by law.
As is typical in Chapter 11 proceedings, McClatchy has filed
customary first day motions that will allow it to maintain its
employee wage and benefit programs, as well as commitments to the
other stakeholder groups throughout this process. It is anticipated
that go-forward trade creditors and other go-forward vendors that
continue to do business with the Company will be unaffected by the
Chapter 11 process, although it is possible that some payments due
prior to the commencement of cases to certain go-forward trade
creditors and vendors may be delayed. These delayed payments to
go-forward trade creditors and vendors are anticipated to be cured
in full when the Company exits Chapter 11.
The Plan of Reorganization
As previously disclosed in the Company's press release
dated November 13, 2019, McClatchy has been in
active restructuring negotiations with the PBGC and its largest
secured creditor to address the future of its pension
obligations and capital structure.
More recently, as announced on January
15, 2020, McClatchy has included lenders holding
approximately 87 percent of the Company's 9.000% Senior Secured
Notes due 2026 (the "First Lien Notes") in those confidential
discussions.
In summary, the Company's Plan, which, along with the Company's
Disclosure Statement, has already been submitted to creditors for
approval, provides:
- The Company's existing First Lien Notes will be exchanged for
new first lien notes in an amount not more than a principal balance
of $218M, secured by the same
collateral, having the same maturity and accruing interest at a
rate of 10% per annum;
- The Company's largest holder of secured debt, including First
Lien Notes, the loans made under the Company's Junior Lien Term
Loan Credit Agreement dated as of July 16,
2018 (the "Second Lien Term Loans"), and the 6.875% Senior
Secured Junior Lien Notes due 2031 (the "Third Lien Notes") will
receive $81 million of secured debt
subordinate to the new first lien notes in exchange for a portion
of its existing First Lien Notes and a commitment to provide the
Company with $30 million of exit
financing (such subordinated debt to accrue payment-in-kind
interest of 12.5% or cash-pay interest of 10%, depending on the
Company's ratio of leverage to adjusted EBITDA);
- The Company's existing Second Lien Term Loans and Third Lien
Notes will be extinguished in exchange for 97% of the equity
ownership of the Company, subject to dilution for management
incentives and certain warrants for up to 2.5% of the equity
ownership of the Company;
- Certain creditors who are no longer part of the Company's
go-forward operations will share, pro rata, in a pool of
$3 million or warrants to acquire up
to 2.5% of the equity ownership of the Company;
- The Company's existing equity will be cancelled; and
- The Company will seek the Bankruptcy Court's authority to
terminate its qualified pension plan, and appoint PBGC as the
plan's trustee. Under a plan termination, PBGC would continue to
pay the Company's qualified pension plan participants their
benefits, subject to federal statutory limits. Under current
regulations, McClatchy believes that such a solution would not have
an adverse impact on qualified pension benefits for substantially
all plan participants. The Company proposes to settle its
liabilities in connection with the qualified pension plan by paying
PBGC $3.3 million from the Company
each year for ten years and 3% of the equity ownership of the
Company.
The terms of the Plan represent the Company's good faith
proposal to restructure its existing obligations. As previously
announced, the Company has been negotiating such proposals with its
largest stakeholders for some time. Certain issues, summarized
below, represent the most recent bargaining position of certain of
those parties.
- First, while the PBGC has not indicated that it disputes that
the qualified pension satisfies the standards for termination, the
PBGC has requested a materially larger stream of cash payments over
ten years and a materially larger percentage of equity ownership in
the Company in settlement of the PBGC's claims relating to
termination of the qualified pension plan; and
- Second, the parties continue to negotiate the final details
surrounding governance and senior management.
This is not an exhaustive list of all matters that remain under
negotiation, but it is a summary of the material issues that remain
under consideration. For more information, please reference the
Company's 8-K filed with the U.S. Securities and Exchange
Commission.
In order to enhance the likelihood that the parties can achieve
a consensual resolution, McClatchy has requested that the
Bankruptcy Court approve procedures for an independent mediator to
be appointed to facilitate and supervise the parties' continuing
restructuring negotiations.
McClatchy has advised the NYSE American of the filing. Since the
Company does not anticipate emerging as a public company, but
rather as a private company, it expects the NYSE American and the
Company will begin the process to remove its listing from the
exchange.
Outlook on Results for the Fourth Quarter and Full Year
20191
The Company continues to finalize the accounting for its fourth
quarter and full year 2019 results, and accordingly does not yet
have an estimate of net income for the periods. As management
indicated in McClatchy's third quarter earnings release, the
Company was cycling against a relatively strong fourth quarter of
2018 when it benefitted from political advertising for the mid-term
elections and instituted strong expense initiatives that helped the
fourth quarter of 2018 and the first three quarters of 2019.
Accordingly, management did not expect sequential improvement in
earnings before interest, taxes, depreciation and amortization
(EBITDA) to continue in the fourth quarter of this year. And while
that turned out to be the case, preliminary results are somewhat
better than what was expected at that time.
McClatchy expects total revenues in the fourth quarter to be
$183.9 million, down 14.0% from the
fourth quarter of 2018 with advertising revenues of $89.7 million and audience revenues of
$80.0 million. Adjusted EBITDA is
expected to be $33.3 million for the
fourth quarter of 2019. For full year 2019, revenues are expected
to be $709.5 million, down 12.1% from
2018 with advertising revenues of $337.1
million and audience revenues of $321.8 million. Adjusted EBITDA is expected to be
$98.2 million for full-year 2019.
During the course of the restructuring negotiations, the Company
disclosed certain financial information and projections with the
parties. Such information is summarized above and the Company's
Disclosure Statement accompanying the Plan.
1 Adjusted EBITDA is a non-GAAP measure and excludes
charges or credits not indicative of core operations and tax
effects of these items, which may include but not be limited to
non-operating income and expenses, severance charges associated
with changes in our operations, equity income (loss) in
unconsolidated companies, net, non-cash stock compensation expense,
non-cash and non-operating pension costs, and certain other
charges. The Company is unable to provide reconciliations from
the GAAP measure of net income to the non-GAAP measure of Adjusted
EBITDA without unreasonable effort, although it is important to
note that these charges or credits could be material to the
Company's fourth quarter and full year results in accordance with
GAAP. Management believes that the presentation of the non-GAAP
measure, Adjusted EBITDA, enhances the ability of investors to
analyze trends in its business and provides a means to compare
periods that may be affected by various items that might obscure
trends or developments in the business.
Resources & Additional Information
Additional information about the Chapter 11 process can be found
by visiting McClatchy's dedicated site at
https://McClatchyTransformation.com. In addition, legal filings and
other information related to the Chapter 11 case are available at
www.kccllc.net/McClatchy, or by calling +1 (866) 810-6898.
McClatchy is advised in this process by Skadden, Arps, Slate,
Meagher & Flom LLP, the Groom Law Group, and Togut, Segal and
Segal as legal advisors and Evercore Group L.L.C. and FTI
Consulting, Inc. as financial advisors.
About McClatchy
McClatchy operates 30 media companies in 14 states, providing
each of its communities with strong independent local journalism in
the public interest and advertising services in a wide array of
digital and print formats. McClatchy publishes iconic local brands
including the Miami Herald, The Kansas City Star, The Sacramento
Bee, The Charlotte Observer, The (Raleigh) News & Observer, and the Fort
Worth Star-Telegram. McClatchy is headquartered in Sacramento, Calif., and listed on the New York
Stock Exchange American under the symbol MNI. #ReadLocal
Forward-Looking Statements
Statements in this press release regarding results of
operations, cash flow or financial condition, future financial and
operating results, including our restructuring efforts with PBGC,
our lenders, and our bondholders, and any other statements about
management's future expectations, beliefs, goals, plans or
prospects constitute forward-looking statements as defined in
the Private Securities Litigation Reform Act of 1995. Any
statements that are not statements of historical fact (including
statements containing the words "believes," "plans," "anticipates,"
"expects," "estimates" and similar expressions) should also be
considered to be forward-looking statements. There are a number of
important risks and uncertainties that could cause actual results
or events to differ materially from those indicated by such
forward-looking statements, including: the effects of the
Bankruptcy Court rulings in the Chapter 11 proceedings and the
outcome of the proceedings in general; the length of time the
Company will operate in the Chapter 11 proceedings; our
restructuring efforts rely on coming to terms with multiple parties
who may have conflicting interests; the potential adverse effects
of Chapter 11 proceedings on the Company's liquidity or results of
operations or its ability to pursue its business strategies;
increased levels of employee attrition during the Chapter 11
proceedings; we may experience diminished revenues from
advertising; we may not achieve our expense reduction targets
including efforts related to legacy expense initiatives or may do
harm to our operations in attempting to achieve such targets; our
operations have been, and will likely continue to be, adversely
affected by competition, including competition from internet
publishing and advertising platforms; increases in the cost of
newsprint; litigation or any potential litigation; geo-political
uncertainties including the risk of war; changes in printing and
distribution costs from anticipated levels, including changes in
postal rates or agreements; changes in interest rates; increased
consolidation among major retailers in our markets or other events
depressing the level of advertising; competitive action by other
companies; and other factors, many of which are beyond our control;
as well as the other risks listed in the Company's publicly filed
documents, including the Company's Annual Report on Form 10-K for
the year ended December 30, 2018.
While it is not the Company's preferred outcome, in the event that
the various stakeholders cannot agree to a timely and viable plan
of reorganization, the Company would likely be required to consider
other alternatives, including a competitive marketing process in
order to obtain the maximum recovery for all of its stakeholders.
These forward-looking statements speak as of the time made and,
except as required by law, we disclaim any intention and assume no
obligation to update the forward-looking information contained in
this release.
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Contact
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Media
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Jeanne
Segal
1-202-383-6085
jsegal@mcclatchy.com
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FTI
Consulting
Rachel Chesley / Lou
Colasuonno / Ryan Toohey
1-212-850-5681
mcclatchy@fticonsulting.com
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Investors
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Stephanie
Zarate 916-321-1931 szarate@mcclatchy.com
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SOURCE McClatchy