Judge denies Alden challenge in McClatchy bankruptcy bidding; auction planned for Friday
A federal bankruptcy judge on Thursday rejected a last-minute attempt by Alden Global Capital to weaken a rival bid for McClatchy Co., clearing the way for a pair of hedge funds to battle for ownership of the nation’s second largest local news company.
Judge Michael E. Wiles’ decision set up what could be a complex sale process that is scheduled to culminate July 24, when he will approve the winning bidder or award the company to a backup bidder.
An auction, which has been delayed twice this week, is now scheduled for 10 a.m. ET Friday. The bidders will be two hedge funds with other media holdings, Alden and Chatham Asset Management, which is McClatchy’s largest creditor.
Late Wednesday, Alden filed the challenge to Chatham’s bid, which plans to convert some of McClatchy’s debt into a credit to use toward purchase of the company.
Alden’s filing made public what had only been rumored, that it wants to buy McClatchy, a local news company that has been family-controlled since its founding 163 years ago in Sacramento, Calif. The company declared bankruptcy in February.
In arguing against Alden’s challenge, McClatchy’s attorney noted that Alden’s opening bid going into the auction was lower than Chatham’s, which relies on part debt and part cash.
“Alden is prepared to top this bid,” Lisa G. Beckerman, outside counsel to Alden, told Wiles in reply.
“It has bought other newspapers out of Chapter 11. This is what it does as part of its strategy. It is good at saving publications and reviving them. That is what it does, and it has the money.”
About a decade ago, Alden took ownership of bankrupt MediaNews Group, whose flagship title is the Denver Post. Alden also owns about a third of Tribune Co., which twice discussed merging with McClatchy before the bankruptcy filing.
Many media observers believe that the best route to survival for local news companies is to become larger, consolidated organizations that can provide economies of scale.
Last month, in a profile of Alden managing director Heath Freeman, The Washington Post wrote that the number of U.S. newspaper employees has been cut by half since Alden entered the industry, but that Alden’s cuts have been deeper — more than 70 percent of unionized staff, according to the Communications Workers of America.
In an earlier filing that effectively served as a floor to open the bidding for McClatchy, Chatham had offered to acquire the company for about $300 million, a combination of the debt credits and at least $30 million in cash.
Alden alleges that some of McClatchy’s unsecured, or less protected, debt might be included in Chatham’s deal and that it was improper because Wiles has signaled that the issuance of the unsecured debt in 2018 could be open to litigation.
But lawyers for McClatchy and Chatham, which has been an investor in McClatchy since 2009, argued that there has been no offer involving the disputed debt. In fact, they said, Chatham has improved its credit bid since July 1 when the judge first raised concerns.
After about a half-hour of testimony Thursday, Wiles rejected Alden’s motion by noting that McClatchy and its creditors were ready to go to auction. But he acknowledged that he might well be settling the dispute in 15 days.
“I just hope I don’t regret it on July 24,” he said, referencing the date he must ratify the winning bid.
If the winner is Chatham and if Alden contests the credit portions of its offer, Wiles could ultimately award the sale to a backup bidder. That likely would be Alden.
McClatchy filed for Chapter 11 bankruptcy citing the twin burdens of debt from the 2006 purchase of the larger Knight Ridder chain and its legacy pension obligations. The company concluded in late December 2019 that it would be unable to meet a $120 million quarterly pension obligation coming due in September 2020.
The Pension Benefit Guaranty Corporation, the federal entity that takes over administration of distressed pension programs, has the largest claim among the members of the Unsecured Creditors Committee, which represents those with less protected claims against McClatchy.
Other committee members include former Knight Ridder CEO Tony Ridder, who represents a group of former Knight Ridder and McClatchy executives and senior employees who were owed an estimated $118 million in supplemental pensions when McClatchy filed for bankruptcy.
McClatchy owns 30 media titles in 14 states and Washington, D.C., including the Miami Herald, the Kansas City Star, the Sacramento Bee, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram.
