McClatchy and each of its 53 wholly owned subsidiaries filed their voluntary Chapter 11 petitions in the
The Company has obtained new
"McClatchy's Plan provides a resolution to legacy debt and pension obligations while maximizing outcomes for customers and other stakeholders," said
"McClatchy remains a strong operating company with an enduring commitment to independent journalism that spans five generations of my family,'' commented
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
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
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
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 millionof 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 millionof 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 millionor 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'sauthority 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 millionfrom 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
In order to enhance the likelihood that the parties can achieve a consensual resolution, McClatchy has requested that the
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
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
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
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
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