McClatchy Co., the second-largest newspaper chain in the country, filed for bankruptcy Thursday, its flagship Sacramento Bee reported.

If a bankruptcy judge accepts McClatchy’s restructuring plan, after 163 years of family control, the company will be delisted from the New York Stock Exchange and turned over to a hedge fund. 

In North Carolina, McClatchy owns The News & Observer, The Charlotte Observer, and the Durham Herald-Sun. In the immediate future, the Bee reported, the filing will have no effect on the chain’s current employees. What the reorganization will mean in the medium and longer terms is unclear. 

McClatchy’s difficulties are familiar to anyone in the business. Print advertising and circulation revenue have declined precipitously.

There are also legacy problems: McClatchy has 24,500 current and future retirees in its pension system supported by fewer than 2,800 workers. Worse, in 2006, the company bought the Knight-Ridder chain for $4.5 billion in cash and stock and assumed $2 billion more of Knight-Ridder’s debt. Soon after, the economy crashed, the newspaper industry never recovered, and McClatchy was burdened with an impossible debt load. 

And while McClatchy has added digital ad revenue and digital subscribers, especially in the last three years, it hasn’t been enough to offset those losses or pay down that debt. McClatchy finished Wednesday with its stock trading at 75 cents a share—down from $740 a share in 2006. It also has an outstanding debt of $703 million and estimated pension obligations of more than $800 million. 

If the court accepts the plan, the Chapter 11 reorganization will allow the company to shed 60 percent of its debt.

As the Bee explains the arrangement: “Under a deal with creditors, holders of McClatchy’s most protected debt—known as ‘first lien’ debt—will swap it for new debt worth $218 million, with the same maturity date but a 10 percent annual interest rate, an increase from the current 9 percent rate on similar securities. Holders of a larger pool of second and third-level McClatchy debt will swap it out for a 97 percent equity stake in what will become a privately held news organization.”

Meanwhile, the company will ask the federal Pension Benefit Guaranty Corporation to take over the administration of its pension plan, promising to pay $3.3 million into the plan each year for a decade. The PBGC has not yet agreed to this proposal. 

Under McClatchy’s bankruptcy plan, the reorganized company will be led by the New Jersey-based hedge fund Chatham Asset Management LLC, which would operate it as a privately held company. Last year, Chatham reported managing $4.4 billion in assets from 14 clients. Billionaire investor Leon Cooperman and hedge fund Brigade Capital Management would also have stakes in the new company. 

“As a supportive investor in McClatchy since 2009, Chatham is committed to preserving independent journalism and newsroom jobs. We look forward to working with the company in the best interests of all stakeholders,” Chatham told the Bee in a statement.

The hedge fund reportedly specializes in companies facing debt distress, including old-school media outlets. It also owns American Media Inc.—i.e., the National Enquirer.

And it has a reputation for playing rough.

Just after the 2016 campaign, Chatham hired then-Donald Trump fixer Michael Cohen—the Enquirer’s David Pecker, whom Chatham had appointed to the board of its company iPayment—to get iPayment’s fired CEO to back off a lawsuit threat. (Chatham has said it didn’t know of Cohen’s involvement but doesn’t deny he was involved.)

Cohen, Pecker, and the Chatham camp promised to “drag your family into this” if the former CE sued, Bloomberg News reported. The CEO, Carl Grimstad, did, and the Chatham camp made good on its word. 

“After Grimstad filed his suit, they countered, claiming Grimstad had used company money to pay a Las Vegas escort $4,000 for ‘sexual activities’ and later hired her and her mother. The New York Post put the story on its front page under the headline ‘Frisky Business.’ (Grimstad has called those allegations “false and meritless.”) It may be no wonder Pecker would enlist Cohen, long known for his doggedness on behalf of Trump. And as it happened, the hedge fund owned the tabloid, the National Enquirer, that Cohen had just used to try and catch and kill stories about the future president.”

Interestingly, McClatchy almost avoided this fate. Late last year, the company lobbied Congress for inclusion in the Secure Act, a bill designed to give struggling community newspapers more time to address their pension commitments. Senator Mike Lee, a Utah Republican, was a vocal opponent, calling it a “special interest bailout.”

(Ironically, in seeking bankruptcy and asking for the PBGC to administer its pension fund, McClatchy is now actually asking for a bailout.)

Still, the Bee reported, a deal looked to be in place, with the major congressional leaders on board. But then, it fell apart—likely owing, in part, to the partisan animus surrounding the fact that the Secure Act passed a day after the House approved articles of impeachment against the president. 

Contact editor in chief Jeffrey C. Billman at 

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