Wednesday, April 15, 2009

Reader: McClatchy would be better off filing for bankruptcy now

A reader emails to say McClatchy is making a strategic mistake by not declaring bankruptcy now, when there is still value in the company and while the company has flexibility. If McClatchy doesn't file soon, the reader says, bankruptcy will be forced on the company later this year when the damage to the company could be much worse.
McClatchy won't be able to stay out of bankruptcy by the end of 2009. I think they can likely cut some more and sell some buildings to delay the inevitable, but it doesn't serve any purpose. They ought to file now while they still have some flexibility. The longer they wait the fewer options they will have.

If they allow the banks to renegotiate again, then the banks will literally be on the verge of selling the printing presses to 3rd world buyers.

If McClatchy were to take it's medicine now, they would be able to continue in business and restructure as an ongoing company.

However, if they continue to bleed the product by slashing employees and becoming more and more pathetic, then once bankruptcy finally arrives the creditors will see nothing worth continuing. No buyers will show any interest in continuing the newspapers as is. They will move to a property and building liquidation.
You have to think one of the options the corporate bigwigs are weighing is the best timing to file bankruptcy.


Anonymous said...

Your emailer is clearly looking at the situation from the viewpoint of a customer or employee and not from the viewpoint of reality.

Firstly, MNI's management is wholly invested in maintaining control of the company. Bankruptcy in any form diminishes or removes that under the best of circumstances. They have already made it clear that strategic filing is not their intention and there is no shareholder ability to force them into anything. Kicking and Screaming is the only way that Pruitt et al are going out.

Secondly, what do you mean, "if they allow banks to renegotiate?" That is not how it works. Banks do not need McClatchy permission to renegotiate. While McClatchy will not go bankrupt this year, they will default on covenants with the Creditors. This in turn will force McClatchy to accept even more restrictive terms, forcing more layoffs, higher interest rates, and possible liquidation of certain assets satisfy them.

The Creditors have already signaled that they have no desire or intention of running the papers. They are completely satisfied with squeezing out what ever they can to recoup their investment losses in the company.

Your scenario sounds great, noble and righteous. It's just void of the realities, objectives and goals that the participants actually have.

When assessing the viability going forward on any troubled company, you have to do it from the perspective of the principles involved who affect the situation. Not from the position of rank and file employees, customers, subscribers and Mary Poppins.

This is business. Many things in business are in direct contrast with what conventional wisdom would seem to dictate. Case in point. Layoffs. Layoffs in business are almost always viewed in a positive light as it affects the bottom line. Of course in McClatchy's case this is not the situation as they are getting rid of their core value employees and keeping the ideologues as they have a different plan going forward than what they are telling you.

Anonymous said...

(Frothing at mouth with glee) Let it drag out.

The MNI Marxists want the USA to be like Cuba.

Let them loose their houses and pensions. They can then go to medical school and contrinute here to the great Cuban health care society they all so eloquently masterbate,(er um) write about.

Anonymous said...

9:46 Wow, "truth to power" dude. Goebbels smiles at you today!

Anonymous said...

10:26 AM I am not sure what that means, but if you think I am defending MNI that is not the case. I was merely pointing out the fact that neither party is concerned with the health of the company over their own individual interests.
Bankruptcy now would be in the best interest of the company, but, it is not within the realm of possibility as it doesn't serve the interest of the principals.

Anonymous said...

At least there's consensus that MNI will file bankruptcy at some point in the near future.

The contentiousness over the timing of a bankrupycy, mixed with ideology is just too funny.

Anonymous said...

Word is leaking out today that the SACBEE has resolved their financial problems, and this program may expand to other McClatchy papers. The solution involves massive subscription increases caused by breaking news stories like they introduced today.
A riveting story, covering in excess of a FULL AGE, has a reporter becoming an apprentice chef in a local Italian Restaurant...and it will be a 6 month apprenticeship and we will have updates, even online drama. On his first day of duty he learned to "peel potatoes", "slice some kumquats as thin as a feather", chopped "onions" and "carrots". The drama had me off my chair. I'm sure in the future we may even hear of "choppin brockalee". I see a plucker prize in the future on this series. Just a big win, win, win. What a paper!!
...Oh, by the way...there was no room in the entire edition to mention anything about the "TEA PARTIES" today. They thought that just meant a nice cup of Liptons and a biscuit. Not a clue.

Anonymous said...

As MNI shrinks itself, I see no way for it to continue to meet its debt ratios or even make interest payments. The problem comes with a coercive renegotiation of debt or bankruptcy. MNI's largest creditor, Bank of America is itself not capable of acting in its own self interest.

BofA is in as bad a condition as MNI. A major change in the MNI debt would ripple through BofA's balance sheet with terrible consequences, just as bankruptcy would have terrible consequences for the McClatchy family. The McClatchy family is just as opposed to bankruptcy as BofA, though for different reasons. The family would lose control of the company in a bankruptcy. Thus, I do not see a strategic filing anytime soon. More likely will be a filing in 2011 when the bulk of the debt is due for payment or refinancing.

Unfortunately, Pruitt and his management team are gutting the company's future to preserve McClatchy family control. Leaks from the News and Observer in Raleigh indicate that online is being sacrificed just as is content. Yet, the N&O still plans on spending money on the press. If this is the case across the company, management is doing nothing to preserve any value going forward.


Anonymous said...

Pruitt and McClatchy will not be able to avoid bankruptcy in 2009.

Forget about 2011 when large amounts of debt come due. They are facing problems in 2009 when they violate the debt convenants.

Bankruptcy now would allow the company to restructure and perhaps continue as a newspaper company.

Bankruptcy 12 months from now, after more layoffs, more asset sales, etc, means the potential meltdown of all the newspapers.

If the creditors see nothing worth saving, they will just sell the buildings and the land and liquidate everything.

If Pruitt and the McClatchy family really are interested in saving the mission of the newspaper industry, they should file bankruptcy now and try to save something.

12 months from now it will likely be too late.

Their stock is already almost worthless. There is not much worth fighting over any longer.

Anonymous said...

I have counseled companies and individuals who have had to take bankruptcy and generally in most cases they wait too long. They are looking for the magic bullet or pill which generally does not happen.

Extending debt agreements and finding more expensive credit lines generally does not work. What they are hoping for is an upsurge in business which usually never comes. I would say businesses in MNI's shape are probably about 90% certain to file a reorganization at some point because creditors will want more than they can actually give at some point.

The main option they have now is to sell assets and the question is whether MNI has enough assets that anyone wants and whether it is enough to reduce the credit lines so that they can function and still pay their debts.

Anonymous said...

Per the SEC filing in March, McClatchy has already pledged all assets, including land and buildings, to their banks for their $2 billion in debt.

So for McClatchy to even sell a building or any land, they first need to obtain permission from their lendors to release that asset.

The lendors will surely insist that any cash from a sale must be used to pay down debt. They will also reduce the line of credit by the same amount.

So asset sales don't really gain McClatchy any extra cash for operations. Cash from asset sales will be forced to pay down debt.

No new lines of credit will be extended.

This company is on autopilot to bankruptcy.

Anonymous said...

BofA is in as bad a condition as MNI.


Walt, I usually agree with you 100% but I can't help but wonder if it might have been Citigroup that you were referring to instead of BOA? BOA is one of the companies that I cover, and I am here to tell you now that after they corrected the mess that they made with Mark to Market accounting, BOA is well positioned to not only pay back the money that the government forced them to take, but become more profitable than they have ever been in their entire history. That is if they can keep Obama from moving "his team" into the board room.

Quite frankly, comparing BOA to MNI on any level is just...well, I don't know what it is. I am shocked to hear someone so well spoken even say it.

Anonymous said...

Anon at 4:07, I hope you are right. But, I see another huge round of foreclosures in the second quarter. That will do nothing but further damage BofA's balance sheet. In three months we will probably have a clearer picture of what BofA's finances look like. All in all, I don't think BofA will be capable of renegotiating with MNI this year. They'll want to hold on to that note in its present form as long as they can. For the same reason, I don't think BofA will force MNI into bankruptcy because of a technical default.


Anonymous said...

5:25 AM That is the main point. BOA's balance sheet was clouded because just as with the Savings and Loan Crisis, the Feds changed the rules in mid stream without considering the consequences. When the government created housing bubble popped, suddenly they were forced into valuing the packaged mortgage assets at zero, even though it was only a small fraction of the whole which was really bad.

I think you're right though, BOA will not force them into bankruptcy. I think what will happen is that several directors will be replaced with Creditor representatives and their interest rates will come in at between 10 and 14% on their credit line.