McClatchy to Declare Bankruptcy?

The reason Chatham owns all of that McClatchy debt (I can't speak to the equity they bought up) is complicated. ... but a year and a half ago, McClatchy was on the ropes, and speculators had piled up about half a billion dollars of short bets on credit default swaps. A CDS is a type of insurance against default. Those speculators were betting on a default. Chatham was the one who was selling a lot those swaps (kind of like selling insurance policies).

What happened next was really sleazy, and I have no idea how it is even legal. Chatham turned around after selling all of those swaps, which it actually stood to lose on if McClatchy defaulted, and struck a deal with McClatchy to refinance its bonds. It trimmed a lot of interest off and extended how long the company had to pay it back. The catch was that Chatham made it so that they orphaned the CDS contracts. ... by shifting the debt into a new holding company. It basically left all of those shorts holding a bet on default. ... against an empty company that no longer had any debt (because the debt had been shifted somewhere else). For Chatham it meant collecting premium on the swaps it had sold; free money. ... against an empty company that no longer had any debt. It was total manipulation.

At the same time as all of that Chatham was buying up a ton of McClatchy stock, so they likely thought the business was a good investment opportunity (probably why they were selling the swaps, too), as well, and probably felt good lending all of that money in the refinancing, on that basis too. But the sleaziness of the CDS scheme to work both sides of the trade for a guaranteed profit really raised a lot of eyebrows.

 

They are merging, or are they back in talks?