McClatchy to Declare Bankruptcy?

If this bankruptcy goes through, Chatham Asset Management will become the owner of McClatchy.

As an outsider looking in, this is a complicated story. I posted this months ago. ...

Chatham loaded up on McClatchy debt and equity over a long period of time, which may suggest they believed in the company's viability and were investing and loaning money because they thought the company could be turned around.

But then they engaged in a financial transaction that was sleazy in a way I have never actually seen before. I was not sure how it was even legal. About 2 years ago, speculators had piled up about a half billion dollars on credit default swaps. ... betting McClatchy was going to default on its debt (and look at where we are now). Chatham was selling those swaps. If there was no default, they'd collect the premium, sort of like selling an insurance policy that never has a claim. If the company did default, Chatham would have lost a lot of money.

When McClatchy started to buckle, and it looked like a default was coming, Chatham (a major debt holder) struck a deal with the company to refinance its debt, trimming interest and extending the term of the bonds. The catch was that they structured it in a way that orphaned the CDS contracts Chatham was on the hook for. ... creating a new holding company and moving the debt to the new entity. It left everyone who had been betting on a default, holding swaps against an empty company that no longer had any debt. The debt had just been shifted on paper to something with a different name. I don't know HOW you can do something like that, but they did and seemingly got away with it.

What makes this complicated is that aside from that bit of financial chicanery, which should make anyone suspicious of Chatham and how it operates ... you need to remember that Chatham had also had lent a ton of money to McClatchy and had loaded up on stock in the company. They may have been actually selling those swaps because they believed in the company so much and believed it wouldn't default. Their involvment buying debt and equity demonstrates that they probably thought the business was a good investment opportunity.

Now if this bankruptcy goes through, they are going to be the owner. If I was an employee facing all of the uncertainty right now, I think I'd rather have someone like that as the new owner than someone you know is an activist investor looking to maximize the value of what they own in any way possible including having a fire sale. It could be the best relative outcome in a bad situation.