This blog is mainly about the spectacular train wreck at The Sacramento Bee and its parent company, the McClatchy Company. But I also post about current events, the Iraq and Afghanistan wars, politics, anything else that grabs my attention. Take a look around this blog, hope you enjoy it.
Friday, June 19, 2009
Bondholders cool to McClatchy's offer of pennies on the dollar?... MNI amends debt exchange offer
The original offer of just 20 cents on the dollar was not very good for two reasons. One, most of that offer was new debt, only $60 million was cash. Cash which would have been borrowed, I might add. Two, it left the stock holders in control of the profits of the company. If the company ever shows a profit again. Thus bond holders had no upside in return for reducing their debt.
The small amount of the tender gives an indication of how many of the MNI bonds are protected by credit default swaps and how much more likely the bond holders think the CDS partners are to pay off than MNI in the event of default. The question a bond hold has to ask is will an 80% haircut work out better for me than a bankruptcy?
I think the answer is clear, bankruptcy is the preferred route unless MNI is going to significantly sweeten the cash aspect of the exchange. In bankruptcy the bond holders would likely be converted to equity holders and the current shareholders would be wiped out. That would at least give the bond holders some upside potential. Of course for the bond holder protected by a CDS, he needs only evaluate the relative strength of the CDS partner against MNI and decide whom to go with.
What, if anything, would a McClatchy bankrupcy mean for already-retired employees' pensions? ========================
It really depends on your annual pension amount. If you are receiving less than $45,000 annually and you are over 65, you will like be guaranteed by the Pension Benefit Guaranty Corporation.
I forget the legal maximum payout. But it is around $45,000 to $50,000. I recall that airline pilots get the shaft because they have to retire at an age below 65 and their pensions are typically much higher than the PBGC maximum. So pilots of airlines in bankruptcy really get hurt badly.
The bondholders know that McClatchy is losing money even if their debt were $0.00 with no interest payments. They still would have been cash flow negative by $11 million last quarter before paying any debt.
So even if the bondholders do the exchange, they are still dealing with a debtor that is likely to file bankruptcy soon.
I forget the legal maximum payout. But it is around $45,000 to $50,000.
54,000 this year, but don't be surprised if Obama tries to take it or cut it next year. Nothing is safe from redistribution of wealth under the Socialist banner.
The pension would certainly be terminated in Chapter 11 and handed over to the government-run PBGC to administer. As has been said, if current retirees collect more than $45,000 annually, you'll see your benefits cut.
Also in bankruptcy, expect to see contracts terminated and replaced with deep concessions, broad layoffs (far beyond what's already been cut in the workforce) and likely steep cuts in medical benefits (ie, a big hike in premiums for employees).
Thanks for the answers to the pension question. Just to clarify: I assume you mean a maximum $54,000 pension benefit, not total income (which would also include Social Security, interest income, etc.)
8:58 AM That is correct. Also remember that your 50% survivors benefit has additional limits. They have a table on the Pension Benefit Guarantee web site that shows your benefit according to age at retirement etc.
11 comments:
The original offer of just 20 cents on the dollar was not very good for two reasons. One, most of that offer was new debt, only $60 million was cash. Cash which would have been borrowed, I might add. Two, it left the stock holders in control of the profits of the company. If the company ever shows a profit again. Thus bond holders had no upside in return for reducing their debt.
The small amount of the tender gives an indication of how many of the MNI bonds are protected by credit default swaps and how much more likely the bond holders think the CDS partners are to pay off than MNI in the event of default. The question a bond hold has to ask is will an 80% haircut work out better for me than a bankruptcy?
I think the answer is clear, bankruptcy is the preferred route unless MNI is going to significantly sweeten the cash aspect of the exchange. In bankruptcy the bond holders would likely be converted to equity holders and the current shareholders would be wiped out. That would at least give the bond holders some upside potential. Of course for the bond holder protected by a CDS, he needs only evaluate the relative strength of the CDS partner against MNI and decide whom to go with.
Walt-in-Durham
The bankruptcy drums are beating louder with this news, I'm afraid. A McClatchy reorganization will be brutal.
What, if anything, would a McClatchy bankrupcy mean for already-retired employees' pensions?
I give them credit for trying this crap on the heels of the Chrysler/ GM socialist cram down. Capter 11 please.
What, if anything, would a McClatchy bankrupcy mean for already-retired employees' pensions?
========================
It really depends on your annual pension amount. If you are receiving less than $45,000 annually and you are over 65, you will like be guaranteed by the Pension Benefit Guaranty Corporation.
I forget the legal maximum payout. But it is around $45,000 to $50,000. I recall that airline pilots get the shaft because they have to retire at an age below 65 and their pensions are typically much higher than the PBGC maximum. So pilots of airlines in bankruptcy really get hurt badly.
The bondholders know that McClatchy is losing money even if their debt were $0.00 with no interest payments. They still would have been cash flow negative by $11 million last quarter before paying any debt.
So even if the bondholders do the exchange, they are still dealing with a debtor that is likely to file bankruptcy soon.
I forget the legal maximum payout. But it is around $45,000 to $50,000.
54,000 this year, but don't be surprised if Obama tries to take it or cut it next year. Nothing is safe from redistribution of wealth under the Socialist banner.
The pension would certainly be terminated in Chapter 11 and handed over to the government-run PBGC to administer. As has been said, if current retirees collect more than $45,000 annually, you'll see your benefits cut.
Also in bankruptcy, expect to see contracts terminated and replaced with deep concessions, broad layoffs (far beyond what's already been cut in the workforce) and likely steep cuts in medical benefits (ie, a big hike in premiums for employees).
Thanks for the answers to the pension question. Just to clarify: I assume you mean a maximum $54,000 pension benefit, not total income (which would also include Social Security, interest income, etc.)
8:58 AM That is correct. Also remember that your 50% survivors benefit has additional limits. They have a table on the Pension Benefit Guarantee web site that shows your benefit according to age at retirement etc.
9:13, thanks again.
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