The hedge fund Alden Capital Group challenged portions of a competitor’s bid for McClatchy Co. in court filings late Wednesday, a move that confirmed its rumored interest in buying the company and further delayed the auction that will decide the local news company’s future.
Alden, which owns the MediaNews Group chain of newspapers and a third of the Tribune Co., filed an emergency motion asking Judge Michael E. Wiles to effectively disallow portions of the bid from rival hedge fund Chatham Asset Management.
Wiles scheduled a hearing on the motion for 10:30 a.m. ET Thursday. The auction had been scheduled to begin at 10 a.m., and McClatchy said it is postponed until “a time to be determined.”
McClatchy has said that multiple bidders will participate in the auction, but has not specified an exact number.
“We cannot comment beyond what we will say in our filings and in front of the judge,” the company said in a statement Wednesday. “We continue to seek an expeditious auction process and resolution that maximizes value for our creditors.”
At issue is a so-called credit bid made by Chatham as part of the bankruptcy process. The terms called for Chatham, McClatchy’s largest creditor, to forgive some of what McClatchy owed and use that as credit toward the bid.
Alden argues that a portion of that credit should not be included in Chatham’s bid because it was less-protected debt — known as 2nd and 3rd lien debt — that Wiles indicated Monday might be subject to litigation.
Because those debts might be tied up in legal claims, lawyers representing Alden argued, they should not be allowed as part of Chatham’s credit bid.
“Allowing the auction to go forward with ambiguity … will prevent both a fair process and the debtors from maximizing the value of the assets,” Alden argued. It would also give Chatham an “unfair advantage in the bidding at the auction over other qualified bidders,” the filings say.
The move complicates the sale of the nation’s second largest news company, which had been under the control of the McClatchy family for 163 years until February’s bankruptcy filing.
The auction was originally scheduled to happen Wednesday, but just hours before, McClatchy said it was postponed for a day to allow all parties to finalize their bids.
Alden’s lawyers, from the firm Akin Gump Strauss Hauer & Feld LLP, said they would have filed immediately after the Monday hearing if not for something that only the lawyers arguing the case know. The rest was redacted mid-sentence.
Alden noted that McClatchy issued a news release in April announcing the credit offer from Chatham, which included about $30 million in cash in addition to wiping out the debt that Chatham was owed. This sort of credit forgiveness is common in bankruptcy.
“The right to credit bid, however, is not absolute,” lawyers for Alden wrote.
Representatives for Chatham declined comment on Alden’s filings. Alden’s lawyers did not respond to requests for comment, nor did Heath Freeman, the leader of Alden.
Under the original plan when entering Chapter 11 bankruptcy McClatchy said it was close to a deal that would have made Chatham the majority owner upon exit.
But the sides were unable to reach a restructuring agreement before the pandemic hit in March, tanking the economy and changing the economics of any deal. In April, McClatchy announced that it would add a second exit option, a sale of the company.