The McClatchy Company and debtor affiliates asked the Bankruptcy Court for the Southern District of New York to reconsider the final order on the Debtors’ motion to obtain post-petition financing from the DIP lenders and to use the pre-petition secured lenders’ cash collateral. The impact of COVID-19 has required the Debtors to re-evaluate their business plans, and take actions to preserve value and liquidity so that they can continue to pursue a value-maximizing outcome for the benefit of all stakeholders.
The Court, previously, has authorized the Debtors to obtain, on a final basis, extensions of post-petition financing of up $50,000,000 in aggregate principal amount (at any one time outstanding until the termination declaration date) from Encina Business Credit SPV, LLC, as administrative agent for its own benefit and that of the DIP lenders.
The terms of the DIP facility include:
* Interest rates: at a per annum rate equal to LIBOR Rate plus the 3.5% (if the relevant obligation is a LIBOR Rate Loan or a Swing Loan that bears interest at a rate determined by reference to LIBOR Rate). There is a LIBOR floor of 1.5%, unless otherwise required under Section 2.12
* Maturity: the earliest of:
- the 18-month anniversary of the closing date,
- if the final financing order is not entered within 45 calendar days after the Petition Date, immediately thereafter,
- the effective date of a Chapter 11 plan of reorganization, and
- the closing of a sale of all or substantially all of the assets of the loan parties pursuant to Section 363 of the Bankruptcy Code.
The Court also authorized the Debtors, pursuant to the final order, to use cash collateral until the termination declaration date. A copy of the final order is available for free at https://is.gd/tHIsWw from PacerMonitor.com.
As of the Petition Date, the Debtors owe the pre-petition secured lenders, with The Bank of New York Mellon Trust Company, N.A., as agent, the approximate outstanding principal amount of:
(i) $262.9 million under the first lien notes documents, plus all accrued interest, costs and fees,
(ii) $157.1 million under the second lien term loan documents, plus all accrued interest, costs and fees, and
(iii) $268.4 million under the third lien notes documents, plus accrued interests, fees and costs.
Proposals Under the Amendment Motion
With the proposed amendment (to the final DIP order), the Debtors are seeking:
(i) to reduce the monthly adequate protection payments (including
payments to the first lien AP professionals such as Paul, Weiss,
Rifkind, Wharton & Garrison LLP, and Kramer Levin Naftalis &
Frankel LLP) by 15%.
(ii) limit payment of the case professional fees by a like amount, reduced to 65% of approved monthly fee statements, instead of the 80% permitted under the interim compensation order.
(iii) a corresponding reduction to the reserves and the DIP carve-out cap to 85% of reported fee accruals for case professionals until receipt of the tax refund.
As a consequence of the recent stimulus legislation passed by the U.S. government in response to the COVID-19 pandemic crisis, the Debtors expect to receive a tax refund of approximately $10 million in the coming months. In the event they receive the $10 million tax refund, the Debtors propose that the proceeds of the tax refund would be distributed as follows:
(1) first, (provided that no default or event of default under the DIP credit agreement has occurred and is not waived) to the First Lien Notes Creditors to satisfy any shortfall in the adequate protection payments required by the final DIP order that remain outstanding as a result of the modified DIP final order, and
(2) second, the case professionals shall be paid an additional 15% of approved monthly fees (up to 80% of the monthly fees identified in approved fee statements) that they would otherwise have been paid in accordance with the interim compensation order.
The Debtors have sought and obtained Court approval to incur the post-petition financing (a) for working capital purposes during the Chapter 11 Cases, including funding of its administrative expenses and (b) to satisfy the outstanding pre-petition ABL obligations and to cash collateralize certain obligations arising under the pre-petition ABL documents.
A copy of the motion is available for free at https://is.gd/RpDwvS from PacerMonitor.com.
About The McClatchy Company
The McClatchy Co. (OTC-MNIQQ) operates 30 media companies in 14 states, providing each of its communities local journalism in the public interest and advertising services in a wide array of digital and print formats. McClatchy publishes iconic local brands including the Miami Herald, The Kansas City Star, The Sacramento Bee, The Charlotte Observer, The (Raleigh) News & Observer, and the Fort Worth Star-Telegram. McClatchy is headquartered in Sacramento, Calif., and listed on the New York Stock Exchange American under the symbol MNI.
On Feb. 13, 2020, The McClatchy Company and 53 affiliates sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 20-10418) with a Plan of Reorganization that will cut $700 million of funded debt in half.
McClatchy was estimated to have $500 million to $1 billion in assets and debt of at least $1 billion as of the bankruptcy filing.
The cases are pending before the Honorable Michael E. Wiles.
The Debtors tapped Skadden, Arps, Slate, Meagher & Flom LLP as general bankruptcy counsel; Togut, Segal & Segal LLP as co-bankruptcy counsel with Skadden; Groom Law Group as special counsel; FTI Consulting, Inc., as financial advisor; and Evercore Inc. as investment banker. Kurtzman Carson Consultants LLC is the claims agent.