McClatchy Co., owner of the Kansas City Star, sought bankruptcy court protection from creditors early this morning, becoming the latest casualty in a financial crisis that has decimated the newspaper industry.
The bankruptcy filing will allow the company the opportunity to restructure its debts, including mounting obligations to its underfunded pension plan for current and former employees. McClatchy hopes to emerge from bankruptcy as a privately held company with much less debt and more flexibility to adapt to a new media environment.
The company has struggled to meet its obligations since acquiring the Knight-Ridder newspaper chain in 2006. Since buying Knight-Ridder for roughly $6.5 billion in cash and assumed debt, McClatchy has seen its advertising revenue plummet by about 80 percent and paid circulation decline nearly 60 percent.
Ultimately, though, McClatchy’s burgeoning pension obligations to more than 24,000 current and former employees sealed its financial fate. The company entered bankruptcy with about $700 million in outstanding debt, plus about $800 million in unfunded pension obligations.
“While we tried hard to avoid this step, there’s no question that the scale of our 75-year-old pension plan – with 10 pensioners for every single active employee – is a reflection of another economic era,” said Kevin McClatchy, chairman of the company that has carried his family name for more than 160 years, in a story published by McClatchy this morning.
If the bankruptcy case goes as expected, bond investors led by the Chatham Asset Management LLC will trade debt for equity in the reorganized company. At least some pension obligations would be assumed by the Pension Benefit Guaranty Corp., which serves as an insurer of failed pension plans.
In the meantime, the company will continue to operate 30 newspapers – including the Star and the Wichita Eagle – in 14 states while it reorganizes in bankruptcy court. It remains unclear whether the new controlling owners will operate the company or sell it off in whole or in parts.
Continued cutbacks, though, appear inevitable. The Star already has announced it will soon stop publishing printed newspapers on Saturday.
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