McClatchy stock crashed Friday after company warned of pension funding crisis

A week of cascading financial woes for McClatchy continued Friday when its already battered stock lost 65% of its value in a single day.

Shares opened at $1.41 and closed at 49 cents. The stock had started the week at $2.75 a share after weak third-quarter earnings and warnings of more problems ahead.

In September the company said it had been put on notice that it stands to be delisted by the New York Stock Exchange American. Unless it can reverse the descent into penny stock territory, that outcome becomes more likely.

Typically McClatchy shares are thinly traded. Yahoo Finance says average volume for the last three months is 32,633; Friday 1,168,121 shares changed hands. There are 5.5 million shares total.

Chief Financial Officer Elaine Lintecum declined by email to comment on the reasons for the selloff or the likely consequences.

There were several dire elements to the company’s third quarter financial report released Wednesday that likely soured investors:

• McClatchy said it will not have the means to make $124 million in pension funding due in 2020. The IRS has declined to grant an extension, so McClatchy may need to ask the federal Pension Benefit Guaranty Corporation to consider taking over the plan.
• Even apart from the pension fund issue, the company updated its description of a “liquidity challenge.” It is asking its largest creditor, Chatham Asset Management, and others to restructure its debt.
• McClatchy marked down the value of its chain of 30 regional newspapers by nearly $300 million. That is booked as a loss by accounting rules but does not involve paying out any cash.

*Steep revenue declines continued, with the total down 12.4% compared to the same period a year ago. Both print and digital advertising declined, together by a combined 19.3 percent.

None of this means that the company’s outlets like the Miami Herald and Kansas City Star and (Raleigh, North Carolina) News & Observer are in danger of folding. Take away the debt and pension burdens, and the company is profitable on an operating basis.

But I would anticipate fresh financial moves as soon as this coming week.

In an earlier email exchange, started by me, Lintecum took exception to my story about the earnings report, especially the headline, which said the company is “exploring options — including a sale.” Lintecum pointed out that the press release does not say that the company is for sale. Agreed — its press release does not say that.

But my analysis is that the severity of the pension and debt problems, together with an announced decision to hire four legal and investment advisory groups, could lead, worst case, to insolvency, a sale, bankruptcy or all three.

The company is controlled by the McClatchy family, and its board so far has resisted a sale or the fresh start that bankruptcy reorganization could provide. Other regional newspaper groups — Tribune Publishing, GateHouse, Digital First and the Philadelphia Newspapers — have relaunched after seeking bankruptcy protection.

In a conference call Wednesday, CEO Craig Forman said that the company continues to do ambitious, high-impact journalism and is determined to keep at it despite the problems outlined. 

He cited as examples a Charlotte Observer series on how North Carolina courts handle weapons crimes, a Lexington (Kentucky) Herald Leader exposé of conditions in local prisons and the group’s coverage of cancer among veterans. 

Forman added that there is a (heavy) “price our communities and we all pay as a society when local media collapses.” So McClatchy will be “resolute,” he said, in trying to stay afloat.

A Securities and Exchange Commission filing from McClatchy on Wednesday painted a less optimistic picture:

“We believe we have taken and are continuing to take prudent actions to address our ability to continue as a going concern; however, there is no assurance that such alternatives will be available on terms acceptable to us, in a timely manner or at all, or our plans will fully mitigate the liquidity challenges we face because some matters are not within our control. These conditions raise substantial doubt about our ability to continue as a going concern …”