Updated as of April 16, 2020
As you know, since issuing our third-quarter earnings in November, we have been in active restructuring negotiations with our secured lenders and bondholders, as well as the Pension Benefit Guaranty Corporation (PBGC), about our capital structure and pension obligations moving forward. On February 13, 2020, McClatchy began a voluntary restructuring process under Chapter 11 of the U.S. Bankruptcy Code to strengthen our balance sheet and position us to accelerate our digital transformation.
Since we filed our voluntary Chapter 11 reorganization case, the world has changed. The extraordinary circumstances posed by the unfolding COVID-19 pandemic and associated global economic challenges have added to headwinds for our efforts to move through this process swiftly as planned.
As previously disclosed, there were two paths that a reorganization such as ours might take: a negotiated reorganization or an agreement to purchase the company during the case. We have always carefully considered both. On April 16, 2020, we announced that we received a non-binding offer to purchase the company through this proven process from funds owned by Chatham Asset Management and Brigade Capital Management. Under terms of the proposal, we will be able to execute a change in ownership while addressing legacy debt and pension obligations. Importantly, in addition, under terms of the proposal, McClatchy would remain one company.
We will continue to operate business as usual – with the same unwavering commitment to delivering strong, independent journalism that is essential to our local communities. There are no changes in your day-to-day work and responsibilities, or wages, salary, and benefits as a result of our Chapter 11 filing or sale process.
To be clear, our finances continue to be sufficient to fund McClatchy’s operations, as well as the restructuring process, even amid the extraordinary global circumstances we are all facing right now.
Our voluntary filing with the U.S. Bankruptcy Court protects stakeholders’ interests. As you know, on February 14, 2020, McClatchy was authorized to continue carrying out operating-as-usual measures such as payroll, health, dental, and vision insurance, and other ordinary course employment benefits like vacation/sick time and 401(k). During the period of this restructuring, credit card charges will be limited to travel-related expenses only.
We will continue to work through every option available to get us to the best outcome for all of our stakeholders. Our board of directors will carefully evaluate the current offer as well as others we may receive. Ultimately, a final offer will be presented to the Bankruptcy Court and appropriate regulatory authorities for review and approval. In short, the commencement of a sale process brings us one step closer to addressing our legacy balance sheet issues and emerging from Chapter 11 as a viable going concern, continuing to deliver strong independent, local journalism in the public interest.
We are committed to keeping you updated throughout this process here on McClatchyTransformation.com, which includes information, FAQs, and resources to help you understand this process.
As always, I want to thank you for your exceptional work. You are the smartest, wisest, most thorough, and thoughtful colleagues working in local journalism, and I’m proud to count myself among the McClatchy team. You work every day to further our mission in the face of industry pressures and challenges and deliver credible and fearless coverage with an unwavering commitment to strong, independent journalism.
In closing, I want to reiterate we are operating business-as-usual. Your continued dedication to this mission is critical to our ability to navigate this process successfully and maintain our focus on providing essential local journalism to communities we serve.
Together, we will ensure a strong future for McClatchy.
Chief Executive Officer, McClatchy
Frequently Asked Questions
1. Is my job safe? Are there any layoffs expected as a result of the Chapter 11 or sale process?
As announced previously, there are no changes in your day-to-day work or responsibilities as a result of this process. We are always looking at opportunities to improve operational efficiencies, and there have been pressures on our business (like many others) with the unprecedented health and economic situation we are facing globally. But our restructuring and sale process is not a part of those efforts and is not geared around cost take-outs.
2. How will Chapter 11 and the sale process impact day-to-day operations? Will my role or responsibilities change as a result of this announcement?
McClatchy and all 30 of our local newsrooms will continue to operate as usual. You should see no change in your day-to-day work or responsibilities as a result of this process.
3. Will there be any changes to my benefits or compensation – including my 401(k), vacation time, sick leave, and holiday programs – as a result of the restructuring or sale process?
You will be paid as usual throughout the restructuring process. The U.S. Bankruptcy Court has authorized McClatchy to continue paying wages, providing health, dental, and vision insurance, and honoring other ordinary course employment benefits like vacation/sick time, 401(k) (including company match), etc. as usual.
4. Why are we commencing a sale process?
Fundamentally, the structure of the offer we received is not very different from the Plan of Reorganization we were soliciting at the start of this process. The proposal outlines a change in ownership that would address our legacy debt and pension obligations and ensure McClatchy is able to go forward as one company.
5. How long do you expect a potential sale to take? Will this expedite our emergence from Chapter 11?
The timing depends on the offers we receive, the duration of the regulatory approval process, and the continued and evolving Covid-19 pandemic.
6. What will change – if anything – under new ownership?
While we aren’t in a position to comment on behalf of a future owner, the current proposal from our lenders would have McClatchy and its 30 news outlets moving forward together as one company.
7. Are we only executing a sale because our lenders asked us to?
No. As previously disclosed, there are two paths that a reorganization such as ours might take. The first is a negotiated reorganization and the second is an agreement to purchase the company during the case. We have always carefully considered both. Earlier this month, we began soliciting proposals in accordance with this latter process (while the mediated and negotiated former path still continues – and that is not unusual). As we shared in our public release today, we have more than 20 parties already engaged in this process.
8. Does a sale process represent a failure of the Company’s mediation process?
No, our discussions with our lenders, the Official Committee of Unsecured Creditors, and the PBGC are ongoing. However, the extraordinary circumstances posed by the unfolding COVID-19 pandemic and associated global economic challenges have added to headwinds for our efforts to move through this process swiftly as planned.
9. What are the benefits of a sale process for employees?
The benefits are the same as those we outlined at the outset of this process: through the Chapter 11 and potential sale process we will definitively address the Company’s funded debt, strengthen our balance sheet, and address our pension obligations moving forward. It will provide greater certainty and stability to the wider group of employees and stakeholders who benefit from a restructured McClatchy.
10. What parties are involved besides Chatham and Brigade?
Because these parties are covered by non-disclosure agreements (NDA), we are not permitted to disclose their participation at this time, nor is their participation a guarantee that they will submit an offer. We will provide updates when definitive documents are entered, but we are not in a position to comment beyond our public announcement at this stage.
11. What are the benefits of the PBGC assuming our qualified pension benefits plan?
Under our proposed plan of restructuring, the assets and liabilities of the McClatchy’s qualified pension plan will be assumed by the PBGC. If the PBGC takes over the pension plan, it will continue to pay the Company’s qualified pension plan participants their benefits, subject to federal statutory limits. We believe that such a solution would not have an adverse impact on qualified pension benefits for substantially all plan participants.
12. Can the PBGC say “no” to the transfer of our pension?
The PBGC guarantees the qualified pension plan and is obligated to take the plan when a company reaches the point where it can’t afford it. In the past five months of negotiations with the PBGC, the PBGC has never suggested that it will resist taking over the plan. In fact, the only issue the Company is negotiating with the PBGC is how much the company needs to pay to PBGC for taking over the plan.
13. Can you give us an example of other media companies that utilized the Chapter 11 process to improve their financial position?
Chapter 11 is a commonly utilized legal tool that allows a company to operate as usual and maintain commitments to stakeholders while addressing financial issues. A number of well-known companies have gone through this process and emerged healthier on the other side – including, in the media industry, Gatehouse, Lee Enterprises, and iHeartmedia.
14. Will McClatchy keep its name?
We do not expect McClatchy to change its name as a result of this filing or sale process.
15. What are we telling our stakeholders about this filing? How are we communicating with our valued vendors, advertising partners, and subscribers throughout this process?
McClatchy’s management team has worked intensively to ensure that all externally facing colleagues have the resources to communicate clearly and accurately with our stakeholders, including vendors, advertisers, and subscribers. Further, we are confident that McClatchy’s proposed plan of restructuring provides a clear resolution to legacy pension and debt obligations and improves our cash position, protecting our future and maximizing outcomes for our stakeholders. For more information on communicating with stakeholders, please visit the additional stakeholder resources on this microsite: https://www.mcclatchytransformation.com
16. Can we still use company credit cards for non-travel related expenses? For those expenses we charge to a personal card, will reimbursements be delayed?
Use of the company card during this filing period is limited to travel-related expenses only. Invoices for non-travel related items should be submitted to PeopleSoft (ePM) for payment. If there are payments envisioned for credit cards that are not limited to travel – including those for vendors or issues with non-travel related expenses – please discuss this with your manager, who will be able to provide guidance and/or point you to the appropriate contact.
17. What is our go-forward plan to attract new subscribers, and, in particular, the younger generation?
Over the past several years, we have made significant progress in our digital transformation. We have grown our digital-only subscriptions and we are now roughly evenly balanced between total audience and advertising revenues. Additionally, we’ve made strides in our smartphone-native app experience which has driven incremental subscriptions and allowed for a more personal experience-a critical platform for younger customers. We’re also constantly testing new, targeted online approaches to get our content in front of as many prospects as possible. We are leading with our product and showcasing examples of how strong, independent journalism is essential to our communities.
18. Are we planning on discontinuing our print offering?
Print is foundational to our product offerings and revenue mix and an important way for our readers and subscribers to access our essential news and information. The majority of our customers however access our content online – on news sites, apps, videos, social media, podcasts, audio and the eEdition. We’ve introduced digital Saturdays in the majority of our communities and have found that our readers maintain a daily habit of accessing our news, exclusively online. We are always evaluating our business needs and ways we can serve our customers and community better. Currently there are no plans to eliminate any more days of print delivery.
19. How will I be kept informed during this process? Where can I go if I have additional questions?
Questions regarding the Chapter 11 process are best directed to your manager or [email protected] You can also visit this dedicated restructuring microsite, www.McClatchyTransformation.com, for more information throughout the process.