McClatchy Co. can begin mediation with the Pension Benefit Guaranty Corp. on March 4 over control of its defined benefit plan, a federal bankruptcy judge ruled Tuesday, according to representatives from the company and PBGC.
In an order filed earlier Tuesday, McClatchy had asked Judge Michael E. Wiles of the U.S. Bankruptcy Court for the Southern District of New York to begin mediation proceedings immediately.
In November, Sacramento, Calif.-based McClatchy disclosed that it was discussing having the PBGC take over its qualified defined benefit plan. That plan, which was closed to new participants in 2009, has $1.3 billion in assets and as of March 31 was underfunded by $535 million. The $124 million in contributions coming due "greatly exceeds the company's anticipated cash balances and cash flow given the size of its operations relative to the obligations due, and creates a significant liquidity challenge in 2020," the company said at the time.
Representatives from the PBGC and McClatchy declined comment on the mediation proceedings.
When bankruptcy proceedings began on Feb. 14, the PBGC raised concerns over a plan to have hedge fund Chatham Asset Management take ownership of McClatchy.
The courtroom fight traces back to a series of debt deals Chatham arranged in 2018.
Chatham owned the vast majority of McClatchy's unsecured bonds in 2018 when it helped provide a new loan for the newspaper chain to extinguish those old debts. While the deal gave McClatchy more time to repay its borrowings, it was a boon for the hedge fund because it was able to trade in bonds that had been on equal footing with pension claims and other creditors for new secured debt that allowed the fund to leap-frog them in the repayment line.
The PBGC said in a filing Feb. 14 that the deals raises "significant concerns of possible fraudulent transfer."
"We need an opportunity to investigate," Kimberly E. Neureiter, an attorney for the PBGC, told the court.
McClatchy's bankruptcy plan calls for handing ownership of the company to Chatham in exchange for extinguishing some of its debt. It's also seeking to terminate its pension plan and hand control to the PBGC, which would continue paying the company's pensioners.
But the PBGC objected to a proposal that may give the hedge fund broad legal protections for the past deals. Judge Michael E. Wiles agreed, saying there was no reason, so early, to make it harder to challenge those transactions.
Bloomberg contributed to this article.
