Creditors group joins pension agency in questioning transactions in McClatchy bankruptcy

A group of McClatchy Co.’s least-protected creditors on Tuesday 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 in federal bankruptcy court in New York, lawyers for the “unsecured” creditors 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.

In the initial hearing on Feb. 14, lawyers for McClatchy and Chatham Asset Management urged the judge to move swiftly to lift the cloud of bankruptcy and allow the media company to return to normal operations.

It was not immediately clear whether Tuesday’s filing would become a roadblock.

In the filing, lawyers for Stroock & Stroock & Lavan, which identified itself as proposed counsel for the Committee of Unsecured Creditors, asked the judge to authorize the examination of 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 privately held company. The McClatchy family founded the local media company in Sacramento 163 years ago.

The unsecured creditors represent a range of interests from former newspaper executives to unions that represented pressmen 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 actually 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.

Chatham denied the allegations in a statement Tuesday.

“These allegations are wholly without merit and Chatham will defend itself vigorously,” said the statement.

McClatchy, through its restructuring team, declined to comment. 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.

The Stroock & Stroock lawyers did not return calls and emails requesting comment.

The allegations are similar to arguments made by the government’s Pension Benefit Guaranty Corporation during the opening bankruptcy hearing.

The PBGC was created to assume administration of pensions when companies fail. Its lawyers urged presiding Judge Michael E. Wiles to slow efforts by McClatchy and its top creditors to emerge from bankruptcy in as quickly as 60 days.

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.”

Before ruling on the filing, Wiles must accept Stroock & Stroock & Lavan as the counsel for the unsecured creditors.

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 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,” wrote lawyers for The Wagner Group in their Tuesday filing. “Direct deposits were made to many retirees’ bank accounts and then, without notice, suddenly reversed.”

Many of the retirees are elderly or widows of former employees who need the payment to pay medical bills, they claimed in their filing.

“Some retirees are former executives. The majority are former working journalists, advertising salespeople, and employees from circulation and distribution, production, accounting and finance,” they wrote in the filing. “They were promoted because they were the hardest working and the most dedicated.”