Creditors group joins pension agency in questioning transactions in McClatchy bankruptcy
Editor’s note: This story was updated at 1:30 p.m. Eastern on March 5 to include McClatchy’s response throughout.
A committee of McClatchy Co.’s least-protected creditors has joined the federal pension agency in questioning transactions involving the local news company’s largest lender, which would take ownership under the Chapter 11 reorganization plan submitted last month.
In a brief filed Tuesday in federal bankruptcy court in New York, lawyers for the “unsecured” creditors committee took issue with McClatchy’s request to speed the proceedings and sought time to examine what they called “suspect” financial dealings.
“The suspect transactions … (can’t) go without independent scrutiny based on specious assertions that the debtors are a proverbial melting ice cube that cannot afford any delay,” the filing states.
Lawyers for McClatchy and Chatham Asset Management have asked Judge Michael E. Wiles to move swiftly to lift the cloud of bankruptcy and allow the media company to return to normal operations.
In a response filed late Wednesday, lawyers for McClatchy accused the creditors’ committee of writing “fiction” and urged Wiles to quickly deny the request to investigate further.
“It seems that the committee wants to create a story for some purpose other than discovery. But the story presented is fiction, not fact,” wrote Van C. Durrer II, McClatchy’s outside counsel and a lawyer at Skadden, Arps, Slate, Meagher & Flom in Los Angeles. “The application is in so many ways replete with misstated facts.
“For the court to have the correct story, the debtors are compelled to file this response.”
Durrer asked the judge to rule on the committee’s request during a hearing scheduled Monday at the U.S. Bankruptcy Court for the Southern District of New York.
In their Tuesday filing, lawyers for Stroock & Stroock & Lavan, which identified itself as proposed counsel for the Committee of Unsecured Creditors, asked to examine records, financial transactions and bookkeeping of Chatham and billionaire investor Leon Cooperman.
The two investors are the most protected creditors and, under McClatchy’s plan, would emerge as principal owners of a new, privately held company. The McClatchy family founded the local media company in Sacramento 163 years ago.
The unsecured creditors range from former newspaper executives to pressmen’s unions to conventional lenders and utilities. They stand to lose in any restructuring that sheds debt.
The lawyers are seeking details about transactions in 2018 and 2019 that allowed McClatchy to push back its payment obligations.
In their filing, the lawyers allege that McClatchy was insolvent at the time and that Chatham, a New Jersey-based hedge fund, structured the deals to protect itself as the largest creditor, jumping ahead of all other creditors and leaving it clear of about $1 billion in unsecured claims.
In a statement Tuesday, Chatham called the allegations “wholly without merit” and said it would “defend itself vigorously.”
Durrer noted in the Wednesday filing that the creditors’ committee provided no evidence that McClatchy was insolvent at the time of the transactions.
“To the contrary,” Duerr wrote. McClatchy did the deals in an effort to give the company more time to meet its debt obligations and continue its digital transformation, the filing says.
The company has previously noted that, at the time of the 2018 transaction, it publicly outlined the debt extensions and how the proceeds would be used. In the Wednesday filing, Durrer wrote that McClatchy has been sharing information about the transaction with the creditors’ committee from the time it was set up.
The Tuesday filing accused McClatchy and its top lenders of imposing an artificially fast timeline on the bankruptcy proceedings. Durrer responded that the deadline was set by Encina Business Credit, which is providing more than $50 million in special financing to help the company operate while in bankruptcy. Encina gave the parties until April 13 to reach a deal or provide an alternative plan to sell the company, Durrer wrote.
The allegations by the creditors’ committee are similar to arguments made by the government’s Pension Benefit Guaranty Corporation during the opening bankruptcy hearing on Feb. 14.
The PBGC was created to assume administration of pensions when companies fail. Its lawyers urged the presiding judge to slow efforts by McClatchy and its top creditors to quickly emerge from bankruptcy.
PBGC lawyers raised broad concerns about the 2018 transactions but did not go into the level of detail in Tuesday’s filing, which claimed that the transactions in question “constitute actual or constructive fraudulent transfers.”
The PBGC had already won from Wiles the right to examine some records surrounding transactions from March, April, July and December of 2018.
The judge cautioned at the time that he would not approve a fishing expedition but warned lawyers for McClatchy and Chatham that he did not want to close off legal avenues to other creditors who might not have come forward yet.
The judge later allowed for mediation, which was scheduled to begin as early as Wednesday. Recently retired bankruptcy Judge Kevin Carey, who presided over media giant Tribune Co.’s 2008 bankruptcy, was appointed as mediator.
In another development Tuesday, lawyers for P. Anthony Ridder, former chief executive of the Knight Ridder newspaper chain, asked Wiles to immediately reinstate suspended supplementary pension benefits for about 450 retirees. Ridder was head of Knight Ridder when McClatchy purchased the larger company in 2006, assuming its pension obligations as part of the deal.
Lawyers for The Wagner Law Group said Ridder and four other salaried retirees have formed the Former Knight Ridder and McClatchy Salaried Retirees Association, and are fighting to restore suspended benefit payments of about $640,000 per month, which are currently $1.3 million in arrears.
“The decision (in January) not to ‘release’ benefit payments was evidently taken with some haste,” Wagner’s lawyers wrote in the Tuesday filing. “Direct deposits were made to many retirees’ bank accounts and then, without notice, suddenly reversed.”
Many of the retirees are elderly or spouses of former employees who need the payment to pay medical bills, Wagner’s filing says.
“Some retirees are former executives. The majority are former working journalists, advertising salespeople, and employees from circulation and distribution, production, accounting and finance,” the lawyers wrote. “They were promoted because they were the hardest working and the most dedicated.”
In a response filed Thursday, McClatchy said it “empathize(s) with the difficulties that the former executives may be facing as a result of the debtors’ current financial constraints.”
The company’s priority, the filing says, is to continue to meet its “obligations to current employees, temporary employees and independent contractors, (and to) honor and continue certain employee benefits obligations in the ordinary course.”
This story was originally published March 3, 2020 at 4:24 PM with the headline "Creditors group joins pension agency in questioning transactions in McClatchy bankruptcy."
