The parent company of The Kansas City Star has filed for Chapter 11 bankruptcy protection in New York.
McClatchy Co., which owns The Kansas City Star and Wichita Eagle, says it hopes to shed about 60 percent of its $703 million in outstanding debt obligations as it continues its transition to digital media.
McClatchy owns 30 newsrooms in 14 states. Besides The Star and Eagle, they include the Miami Herald in Florida, The News & Observer in Raleigh, North Carolina, The Star-Telegram in Fort Worth, Texas and the Sacramento Bee in McClatchy’s California hometown.
McClatchy has been laboring under a heavy debt burden since acquiring the Knight-Ridder chain of newspapers in 2006 for $4.5 billion.
The company, the country’s second-largest newspaper chain, has secured $50 million in debtor-in-possession financing from Encina Business Credit. That, combined with its operating cash flow, should provide enough cash for the company to function, McClatchy said.
“When local media suffers in the face of industry challenges, communities suffer: polarization grows, civic connections fray and borrowing costs rise for local governments,” CEO Craig Forman said in a statement. “We are moving with speed and focus to benefit all our stakeholders and our communities.”
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. More than 7 million shares of publicly owned and family-owned stock would be canceled.
McClatchy was founded in Sacramento in 1857 during the California gold rush and the namesake McClatchy family has had a continuous ownership role since then.
The bankruptcy proceeding would also allow McClatchy to address some $800 million in unfunded pension obligations. The company’s qualified pension plan covers more than 24,500 current and future retirees and is supported by fewer than 2,800 employees. Under McClatchy’s Chapter 11 plan, the federal Pension Benefit Guaranty Corp. would take over administration of the plan and McClatchy would make payments of $3.3 million per year to the agency over the next 10 years.
That, too, would require bankruptcy court approval.
In the short-term, the bankruptcy filing should have no immediate effect on McClatchy’s newspapers, which will continue to operate as the Chapter 11 proceeding proceeds.
Unknown at this point is whether the newspapers will be sold — either individually or in groups — or will remain part of a more nimble, less debt-burdened McClatchy.