McClatchy filed for Chapter 11 bankruptcy Thursday, seeking relief from an unmanageable debt burden. Its proposed reorganization plan allows all 30 of its regional papers to continue operating as proceedings unfold.

The plan anticipates that control of the company will pass to Chatham Asset Management, a hedge fund that holds nearly all McClatchy’s debt.

The McClatchy family and other holders of the company’s stock lose the entire value of their holdings — and board control. Chatham is expected to operate the chain as a private company. Its stock, battered down to 75 cents a share last week from a high of more than $700 in 2004, has stopped trading.

The action will end family control of the company, which dates back to the 19th century.

McClatchy was never able to work out from under a huge debt ($6.5 billion) that it assumed in buying the larger Knight-Ridder chain in 2006. The debt problems passed into a crisis stage last fall when the company announced it would not have the cash to make a legally required contribution to its pension plan in 2020.

In announcing the bankruptcy decision, the company also revealed that a last-ditch effort in December to get Congress to defer the pension payment came close but failed. As part of a federal budget agreement, a group of locally owned papers including The Seattle Times, Tampa Bay Times, (Minneapolis) Star Tribune and several smaller locally owned titles got that relief. But McClatchy, which had hoped to be included, was not.

Bankruptcy reorganizations have been far from unusual for newspaper companies over the last decade. Among those using the process have been Tribune Publishing, GateHouse (which last year bought Gannett and assumed Gannett’s name), Media News Group (controlled by hedge fund Alden Global Capital) and The Philadelphia Inquirer. Papers and their websites and related businesses keep operating; they gain some breathing room to pursue a transition to primarily digital delivery and a digital business model.

It is conjectural at this early stage how Chatham will run the company. This is not its first foray into scooping up a news organization in deep financial trouble. It controls American Media, a group of glossy magazines that includes Men’s Journal and Us Weekly, and the National Enquirer (which it is trying to sell). And since 2016, it has also had a controlling stake in Postmedia, a huge chain of Canadian dailies.

Newsroom cuts could be in the offing — but not necessarily. And Chatham might choose to sell one or several of the titles if it gets an attractive offer from local buyers or another chain.

The group includes the Miami Herald, The Kansas City Star, Fort Worth Star-Telegram, and The Sacramento Bee. On a cash basis, all operate profitably, though up until now much of what they earn has gotten plowed back into interest payments or used to pay down the debt.

What will happen to those earnings, assuming they continue, is not certain — and that is the crux of negotiations with the Pension Benefits Guaranty Corp, which will take over McClatchy’s busted pension plan.

The PBGC, as its name implies, steps in to pay beneficiaries when a plan fails. It is an arm of the federal government but funded by participating corporations rather than tax dollars.

The plan, McClatchy said in the announcement, has 24,500 beneficiaries, counting current and past employees, ten times the number now working at the company.

McClatchy has proposed that after reorganization it will pay the PBGC $3.3 million a year for 10 years and give it a 3% share of the company. However a press release said that “the PBGC has requested a materially larger stream of cash payments over ten years and a materially larger percentage of equity ownership in the Company.”

The company has requested that a mediator be appointed to resolve the differences.

Also, the release says, McClatchy “believes that such a solution (a PBGC takeover) would not have an adverse impact on qualified pension benefits for substantially all plan participants.” That wording seems less than definitive.

So while sure to up anxiety over potential job cuts, the bankruptcy proposal may also raise doubts about promised pensions.

Also yet to be resolved, the press release said are “final details surrounding governance and senior management.”

I asked if that meant that Craig Forman, a former tech executive and journalist who has been CEO for the last three years, hoped to continue running the company.

Forman replied by email: “As you know, CEOs serve at the pleasure of Boards of Directors. It has been, and continues to be, my honor and privilege to serve as requested by our current Board of Directors. As for (the) future? It is simply too soon to comment.”

With the McClatchy family’s backing, Forman has kept the company’s journalism gene strong despite the financial issues — most notably with the lead reporting on the Jeffery Epstein scandal by Julie K. Brown of the Miami Herald.

In addition, McClatchy has undertaken several new initiatives in the last year with outside support — for instance adding two four-person reporting units at The Fresno Bee and piloting digital-only startups in three underserved cities (not ones where McClatchy operates) with a grant from Google’s News Initiative. The first of those, and only to be announced so far, will be based in Youngstown, Ohio.

Tailoring the local reports to measures of digital traffic and engagement, the company has grown paid digital subscriptions quickly — though its current total of about 200,000 works out to only about 6,700 per property.

McClatchy reported revenues for 2019 of $709 million and said that its overall fourth-quarter revenue decline, led by print advertising, was 14%.

The bankruptcy process, likely to take months, has some other uncertainties. A payment plan to other smaller creditors needs to be worked out. In a court filing yesterday, McClatchy also asked that “critical suppliers” like newsprint providers be paid so operations as usual can continue.

What does this mean for the industry at large? McClatchy has had the same basic issue as all regional and local newspaper organizations: Print advertising revenues and now print circulation revenues are falling away faster than digital and other revenues are growing.

So the papers and their websites have little choice but to shrink — less staff, a smaller news report.

McClatchy is a special case given its debt issues. But the bankruptcy rings one more alarm bell on the serious threat to local journalism newspaper organizations.

McClatchy publications by daily print subscribers

(As of 2018, data provided by McClatchy)

• Fort Worth Star-Telegram (Fort Worth, Texas) – 181,289
• The Sacramento Bee (Sacramento, California) – 103,283
• The Kansas City Star (Kansas City, Missouri) – 98,046
• Miami Herald (Miami, Florida) – 78,786
• The News & Observer (Raleigh, North Carolina) – 77,043
• The Charlotte Observer (Charlotte, North Carolina) – 75,329
• The Fresno Bee (Fresno, California) – 55,713
• Lexington Herald Leader (Lexington, Kentucky) – 46,268
• The State (Columbia, South Carolina) – 41,650
• The News Tribune (Tacoma, Washington) – 36,187
• The Wichita Eagle (Wichita, Kansas) – 35,642
• The Modesto Bee (Modesto, California) – 33,426
• The Idaho Statesman (Boise, Idaho) – 31,894
• The Sun News (Myrtle Beach, South Carolina) – 21,144
• Sun Herald (Gulfport, Mississippi) – 20,833
• Belleville News-Democrat (Belleville, Illinois) – 19,333
• The Telegraph (Macon, Georgia) – 19,169
• Tri-City Herald (Kennewick, Washington) – 18,255
• Bradenton Herald (Bradenton, Florida) – 17,825
• The Tribune (San Luis Obispo, California) – 17,079
• The Island Packet and The Beaufort Gazette (Bluffton, South Carolina) – 15,436
• Ledger-Enquirer (Columbus, Georgia) – 14,573
• The Olympian (Olympia, Washington) – 12,314
• Centre Daily Times (State College, Pennsylvania) – 11,399
• The Bellingham Herald (Bellingham, Washington) – 10,124
• Merced Sun-Star (Merced, California) – 9,993
• The Herald (Rock Hill, South Carolina) – 9,672
• The Herald-Sun (Durham, North Carolina) – 8,177

Rick Edmonds is Poynter’s media business analyst. He can be reached at redmonds@poynter.org.