The McClatchy Co., the storied news publisher weighed down by pension obligations and debt, could file for bankruptcy within the next year, according to analysts. The company faces a mandatory $124 million contribution to its pension plan in 2020.
“If they can’t offload the pensions or get pension plan relief, they’ll have to file for bankruptcy,” said media analyst Craig Huber, founder of Huber Research Partners LLC, who has followed the company since 1995. In an interview, Huber estimated McClatchy would have free cash flow of less than $20 million next year, a fraction of what it needs to cover its pension obligations.
A representative for the company declined to comment. In its third-quarter earnings release last week, McClatchy said the pension contribution created “a significant liquidity challenge in 2020.” It also warned in regulatory documents that it may not be able to continue as a going concern.
The Sacramento, Calif.-based company operates 29 newspapers including the Miami Herald, The Charlotte Observer and The Kansas City Star. Other large newspaper companies are also in turmoil, with tens of thousands of newsroom jobs cut over the past decade.
Several financial firms, including Alden Global Capital LLC and Fortress Investment Group LLC, have acquired ownership stakes in newspaper publishers that have struggled to adapt in an online world. Chatham, N.J.-based investment fund Chatham Asset Management LLC is the largest holder of McClatchy debt and, according to data compiled by Bloomberg, is its largest shareholder.
On Monday, Bluestone Financial LTD said in a regulatory filing that its equity stake in McClatchy was almost 12 percent. In a March filing, the investment firm said the stake was about 8.8 percent.
S&P Global Ratings forecast a grim 2020 for McClatchy and last week downgraded it by two notches to CCC-, warning that the company doesn’t have enough money to pay its 2020 obligations.
“It could engage in a distressed debt exchange or file for Chapter 11 bankruptcy before September 2020, when the bulk of its mandatory pension contributions are due,” S&P analysts Thomas Hartman and Vishal Merani wrote in a report.
McClatchy’s pension plan is underfunded by about $535 million. The company asked the federal government to waive its required contribution, but was denied. McClatchy is in talks with Chatham and the Pension Benefit Guaranty Corporation, a federal agency, about the possibility of the PBGC assuming the plan’s assets and obligations, the company said Nov. 13.
The company is also negotiating with Chatham to restructure its debt, including its term loans and junior notes. The company had $709 million of principal debt outstanding as of Sept. 29 and it finished the third quarter with $11.4 million of cash. It refinanced debt with Chatham last year.
