NEW YORK - Bankruptcy proceedings for McClatchy Co. started Friday with a key government agency saying it opposed quick resolution of pension matters because of concerns about a 2018 transaction between the local news company and its largest creditor, Chatham Asset Management.
Ahead of the opening bankruptcy petition hearing, the Pension Benefit Guaranty Corporation filed a limited objection to McClatchy's request to obtain $50 million in new financing to ensure it can continue to operate while in bankruptcy.
The PBGC, which takes over pensions in the event of company distress, did not object to McClatchy's continued use of the new financing. But the agency asked the court to investigate a complex 2018 transaction between McClatchy and Chatham, a hedge fund, before it begins evaluating McClatchy's reorganization plan.
In the filing, lawyers for the agency argued that at the time of the transaction "the Debtors were already insolvent" but allowed Chatham to convert $275 million in unsecured debt into more protected secure debt. The debt had been due in 2022; the transaction pushed that back four years, to 2026.
"As a result of the transaction, the Debtors went from owing a little over $344,000,000 of secured debt to over $670,000,000 of secured debt," the PBGC filing said, adding that the move put repaying Chatham ahead of McClatchy's pension obligations.
"Publicly available information regarding the 2018 Transaction raises serious concerns about whether fraudulent transfers may have occurred, or whether CAM's (Chatham's) claims should be partially or completely subordinated," said the filing from Joseph K. Grekin, a lawyer with Schafer and Weiner, which is serving as outside counsel for the PBGC.
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Chatham had no immediate comment on the assertion.
McClatchy's spokeswoman said the company had no comment.
The case, filed early Thursday, is being heard in U.S. Bankruptcy Court for the Southern District of New York.
The counsel for PBGC objected to the fact that within 36 hours of filing, McClatchy was asking the court to release Chatham from claims, including from any liability in the transaction the agency considers troubling.
Calling such a broad release "simply too early," the filing by Grekin called for creation of a committee to investigate the transaction and bring a cause of action against Chatham if necessary.
The Sacramento-based chain and its top creditors fell short of a pre-packaged deal before entering bankruptcy, complicating a proposal to allow it to shed at least 55% of its debt, cancel McClatchy stock and emerge as a privately held entity owned by lenders that have kept it afloat.
McClatchy owns 30 local media properties in 14 states, including the Sacramento Bee, the Miami Herald, the Kansas City Star, the Charlotte Observer, the (Raleigh) News & Observer and the Fort Worth Star-Telegram.
Visit the McClatchy Washington Bureau at www.mcclatchydc.com