McClatchy announces cost-cutting plan, asks federal bankruptcy court for fee relief
McClatchy Co. announced a series of “highly targeted” cost-cutting actions Thursday and asked the federal bankruptcy court in New York to reduce its legal fees and trim scheduled payments to creditors.
The company said the moves, which include 90-day leaves for a number of advertising employees and cuts in executive compensation, were designed to preserve as many jobs as possible.
The cuts involved more than 4% of McClatchy’s 2,770-member workforce. No journalists were affected.
“As we consider what precise steps to take to address the financial impact of COVID-19 on our business, we have set as a priority the retention of jobs and people in all divisions,” chief executive Craig Forman said in a memo to employees. “With that, our first actions to reduce operating expenses are highly targeted.”
The company, which filed Chapter 11 bankruptcy in February, is seeking relief from the court as it faces an increasingly complicated operating environment.
“The debtors have determined to limit expenditures that do not directly promote revenue, margin, liquidity or continuation of the debtors’ operations,” the company said in its filing to Judge Michael E. Wiles of U.S. Bankruptcy Court in the Southern District of New York.
Calling its motion “time-sensitive and critical,” McClatchy cited lost business due to the widening COVID-19 crisis that has led lawmakers, the Trump administration and the Federal Reserve to try to funnel trillions of dollars into economic rescue plans.
McClatchy asked the judge to approve a 15 percent cut for all lawyers it must pay in the case and to reduce by 15 percent the automatic payments it had agreed to make late last month when Wiles approved $50 million debtor-in-possession financing from Encina Business Credit.
Absent modifications, the company “would likely be forced to seek more extraordinary relief in connection with these Chapter 11 cases to preserve value and liquidity,” McClatchy’s filing says.
The company asked that its motion be addressed April 29, which is the next scheduled hearing. The court is meeting via teleconference because of stay-at-home orders in New York.
If the request is approved, the company’s top creditor, Chatham Asset Management, would receive 15 percent less than agreed upon under the loan designed to help McClatchy operate during bankruptcy. The company declined to say whether Chatham had been notified in advance of the filing, and Chatham officials did not respond to requests for comment.
McClatchy said that it expected to receive a $10 million tax refund under the recently announced federal stimulus plan and that it would use those funds to make agreed-upon payments to its most protected creditors and use the remainder to pay as much of the ongoing legal fees as possible.
It’s unclear what happens if Wiles rejects McClatchy’s motion.
Shortly after the filing, Forman announced what the company called a COVID-19 leave of absence for “certain individuals.”
“This extended leave of absence is an alternative to layoffs, allows these colleagues to continue to be covered by our health insurance, get wage replacement through unemployment benefits which are now enhanced by federal stimulus measures, and enables us to bring these colleagues back to work without interruption once we are past this crisis,” Forman said in the memo to employees.
Forman also said he would take a 50 percent cut in compensation. The other five members of the executive team voluntarily agreed to a 15 percent reduction in compensation, the company said.
Forman also detailed a corporate restructuring and hinted at more efforts to cut costs as the company tries to navigate the challenging waters.
“No question, these actions will have an impact on all of us. And in the days and weeks ahead, we will be carefully assessing the need for additional action as the impact and duration of the COVID-19 crisis becomes more clear,” he wrote.
As part of the restructuring, the company eliminated president and publisher positions at California’s Sacramento Bee and the News & Observer in Raleigh, N.C.
Under the Chapter 11 restructuring plan filed with the court in February, McClatchy would emerge from bankruptcy as a private company owned by Chatham, a New Jersey-based hedge fund that began investing in the company in 2009.
The company is engaged in court-appointed mediation with a large group of unprotected creditors, including the Pension Benefit Guaranty Corporation, which is being asked to take over administration of McClatchy’s qualified pension plan.
The pension agency has raised objections, accusing Chatham and McClatchy of restructuring debt in 2018 to move Chatham ahead of the PBGC and all other creditors. Both companies have refuted the assertion, and Wiles has allowed a committee of creditors to take depositions from those involved and review emails and other documents from the timeframe of the debt restructuring.
McClatchy owns local news titles in 30 markets, including the Miami Herald, the Sacramento Bee, the Kansas City Star, the Charlotte Observer, the News & Observer and the Fort Worth Star-Telegram.
This story was originally published April 9, 2020 at 5:08 PM with the headline "McClatchy announces cost-cutting plan, asks federal bankruptcy court for fee relief."
