Bank­ruptcy is more bad news for pa­pers

McClatchy chain seek­ing pro­tec­tion of Chap­ter 11

Houston Chronicle - - BUSINESS - By Tali Arbel and Michelle Chap­man

NEW YORK — McClatchy, the pub­lisher of the Fort Worth StarTele­gram, Mi­ami Her­ald, Kansas City Star and dozens of other news­pa­pers, has filed for bank­ruptcy pro­tec­tion as it strug­gles to pay off debt while rev­enue shrinks be­cause more read­ers and ad­ver­tis­ers are going on­line.

McClatchy said Thurs­day that its 30 news­pa­pers will con­tinue to op­er­ate nor­mally as it re­or­ga­nizes un­der Chap­ter 11 bank­ruptcy pro­tec­tion, helped by $50 mil­lion in fi­nanc­ing from Encina Business Credit.

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 cur­rently McClatchy’s largest share­holder and debtholder, Chatham As­set Man­age­ment. That would end 163 years of fam­ily con­trol.

It’s also look­ing to un­load its pen­sion obli­ga­tions to a fed­eral cor­po­ra­tion that guar­an­tees pen­sions, so em­ploy­ees would get the ben­e­fits they’re en­ti­tled to.

McClatchy didn’t an­nounce any lay­offs and tried to re­as­sure em­ploy­ees, say­ing that while “we are al­ways look­ing at op­por­tu­ni­ties to im­prove op­er­a­tional ef­fi­cien­cies,” the Chap­ter 11 process is “not geared around cost take-outs.”

The news­pa­per in­dus­try has been deeply hurt by chang­ing tech­nol­ogy that has sent the vast ma­jor­ity of people on­line. Me­dia com­pa­nies have tried to shift on­line, with vary­ing de­grees of success, as their print ad rev­enue and cir­cu­la­tion de­cline.

Com­pli­cat­ing mat­ters, in­ter­net com­pa­nies Face­book and Google re­ceive most on­line ad dol­lars.

While some na­tional news­pa­pers like the Wall Street Jour­nal and New York Times are adding dig­i­tal sub­scribers, help­ing them nav­i­gate ad­ver­tis­ing de­clines, many lo­cal out­lets have had a dif­fi­cult 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 USA To­day pub­lisher, was bought last year by GateHouse, a chain man­aged by pri­vate eq­uity firm Fortress, in a deal helped by a high-in­ter­est, $1.8 bil­lion loan from an­other fi­nan­cial firm, Apollo. It’s the largest news­pa­per chain in the U.S. An­other large chain, Me­di­aNews, is owned by a hedge fund with a rep­u­ta­tion for cut­ting costs and jobs, Alden Global.

News­pa­per com­pa­nies have been through a string of Chap­ter 11 re­or­ga­ni­za­tions in re­cent years. The pub­lisher of the Philadel­phia In­quirer and Philadel­phia Daily News emerged from bank­ruptcy pro­tec­tion in 2010, Chicago Tri­bune and Bal­ti­more Sun pub­lisher Tri­bune Co. in 2012 and GateHouse in 2013.

McClatchy’s bank­ruptcy fil­ing “rings an alarm bell for lo­cal news,” Poyn­ter me­dia business an­a­lyst Rick Edmonds said. “McClatchy’s prob­lems are very typ­i­cal for those of lo­cal news­pa­pers.”

McClatchy’s 2006 pur­chase of the Knight-Rid­der news­pa­per chain for $4.5 bil­lion added to debt and con­trib­uted to its fi­nan­cial woes as the in­dus­try’s de­cline ac­cel­er­ated in sub­se­quent years.

Though fi­nan­cial re­sults aren’t yet fi­nal, the com­pany es­ti­mates 2019 rev­enue fell 12.1 per­cent from the pre­vi­ous year, its sixth con­sec­u­tive an­nual de­cline. McClatchy said its dig­i­tal-only sub­scrip­tions have grown al­most 50 per­cent to 200,000 over the past year.

But that growth hasn’t made up for the loss of ad­ver­tis­ing rev­enue.

In court doc­u­ments, McClatchy said 40 per­cent of its rev­enue now comes from dig­i­tal sources. It said it’s try­ing to shift away from be­ing so re­liant on ad­ver­tis­ing.

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.

In Thurs­day’s fil­ing with U.S. Bank­ruptcy Court in New York, it’s seek­ing per­mis­sion to ap­point that cor­po­ra­tion as the plan’s trustee. McClatchy said “sub­stan­tially all” of the plan’s par­tic­i­pants and ben­e­fi­cia­ries should get their en­ti­tled ben­e­fits.

McClatchy plans to pull its list­ing from the New York Stock Ex­change as a pub­licly traded com­pany. Chatham As­set will be ma­jor­ity owner.

Rich Pedroncell­i / As­so­ci­ated Press file

A head­line an­nounc­ing the pur­chase of Knight-Rid­der by McClatchy is seen on the front page of McClatchy’s flag­ship paper, the Sacra­mento Bee, in 2006.

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