McClatchy committee looks to bring claims tied to Chatham transactions

By Caroline Salls

Pittsburgh, June 23 – The official committee of unsecured creditors appointed for the McClatchy Co.’s Chapter 11 case is seeking court approval to prosecute claims and causes of action, according to a motion filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

The committee said before the bankruptcy filing, the McClatchy debtors and senior secured debtholder Chatham Asset Management LLC “orchestrated a series of transactions designed to generate a windfall for Chatham while protecting the interests of the McClatchy family and other shareholders at the expense of the company’s unsecured creditors.

Based on the results to date of its ongoing investigation, the committee said it has found that the estates have several valuable claims arising from the negotiation and implementation of the transactions in question, including claims for fraudulent transfers, breaches of fiduciary duty and equitable subordination.

According to the motion, the McClatchy debtors, which were insolvent, and Chatham negotiated a series of transactions over a period of 18 months beginning in the fall of 2017. The committee said Chatham ultimately exchanged $340 million of structurally subordinated, parent-only unsecured debt for the same amount of second-lien and third-lien debt secured by substantially all of the parent company’s and subsidiaries’ assets.

“In exchange, the debtors received a meaningless maturity extension and $60 million in new-money financing (at a substantial [original issue discount]) that was primarily used to pay for transaction-related fees and premiums.

The committee said its discovery thus far has revealed that McClatchy’s directors and officers were focused on refinancing the company’s 2022 notes, regardless of any associated burdens and costs.

The creditor group alleged that the board and Chatham devised a strategy under which they would knowingly manipulate the CDS markets to benefit Chatham, uptier all of Chatham’s unsecured debt to become secured by substantially all of McClatchy’s assets and make previously unencumbered assets available as collateral first-lien notes.

“Prosecution of the proposed claims is critical to the success of these bankruptcy cases, and the resolution would, among other things, provide hundreds of millions of dollars in distributable value to unsecured creditors,” the motion said.

“The debtors – who remain under the control of many of the same officers and directors who negotiated, approved and implemented the suspect transactions – are both unable and, as a result of their insurmountable conflict, unwilling to bring the proposed claims.”

McClatchy is a news and information provider based in Sacramento, Calif. The company filed bankruptcy on Feb. 13 under Chapter 11 case number 20-10418.

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