The publisher of the Miami Herald, The Kansas City Star and dozens of other newspapers across the country is filing for bankruptcy protection.
McClatchy Co.'s 30 newsrooms, including The Charlotte Observer, The News & Observer in Raleigh, and The Star-Telegram in Fort Worth, will continue to operate as usual as the publisher reorganizes under Chapter 11 bankruptcy protection. But the McClatchy family will lose control of a business it has run for more than a century and a half, McClatchy DC reported.
The publisher's origins date to 1857 when it first began publishing a four-page paper in Sacramento, California, following the California Gold Rush. That paper became The Sacramento Bee.
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McClatchy has received $50 million debtor-in-possession financing from Encina Business Credit. That, combined with normal operating cash flows, will provide enough cash for the company, still based in Sacramento, to continue to function.
“When local media suffers in the face of industry challenges, communities suffer: polarization grows, civic connections fray and borrowing costs rise for local governments," said CEO Craig Forman. "We are moving with speed and focus to benefit all our stakeholders and our communities.”
McClatchy expects fourth-quarter revenues of $183.9 million, down 14% from a year earlier. Its 2019 revenue is anticipated to be down 12.1% from the previous year. That would mean that the publisher's revenue will have slid for six consecutive years.
The company expects to pull its listing from the New York Stock Exchange as a publicly-traded company and go private.
The likely new owners of the country's second-largest local news company would be led by the hedge fund Chatham Asset Management LLC, McClatchy DC reported.
“While this is obviously a sad milestone after 163 years of family control, McClatchy remains a strong operating company and committed to essential local news and information,” McClatchy Chairman Kevin McClatchy told McClatchy DC. “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.”
McClatchy filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. Its restructuring plan needs approval from its secured lenders, bondholders and the Pension Benefit Guaranty Corp.
McClatchy has suffered as readers give up traditional subscriptions and get news online and like other publishers, it's tried to follow them there.
Digital-only subscriptions have increased by almost 50% year over year, McClatchy said, and subscriptions are now roughly evenly balanced between total audience and advertising revenues, with digital accounting for 40% of those revenues and growing. The company has more than 200,000 digital-only subscribers and over 500,000 paid digital customer relationships.
Independent newspapers and chains alike are struggling. The estimated total U.S. daily newspaper circulation including both print and digital in 2018 fell 8% from the prior year to 28.6 million for weekday. Sunday circulation fell 9% to 30.8 million, according to the Pew Research Center for Journalism and Media.
Last year, New York Times executive editor Dean Baquet bleakly predicted the demise of “most local newspapers in America” within five years, except for ones bought by billionaires. The Washington Post and Los Angeles Times, both national publications, are thriving after being bought by billionaires. The Boston Globe, Minneapolis Star-Tribune and Las Vegas Review-Journal are among other major American newspapers that appear to have steadied themselves after being sold to local wealthy individuals.
"McClatchy remains a strong operating company with an enduring commitment to independent journalism that spans five generations of my family,'' said Chairman Kevin McClatchy, the great-great grandson of the company founder, James McClatchy.
The company has also worked on its financials, trimming operating expenses by $186.9 million for the three-year period ended in December. It's also paid off about $153.5 million in debt in the same period.
The move comes after Congress stopped McClatchy from being included along with other newspapers in a pension relief plan, a result of a last-minute shift in support, according to McClatchy DC.
Forman said McClatchy doesn't anticipate any adverse impact on qualified pension benefits for substantially all of the plan's participants and beneficiaries.