In an 111 page filing posted just before midnight yesterday, the Official Committee of Unsecured Creditors asked the Bankruptcy Court to be allowed to sue McClatchy’s hedge fund creditors, its directors and its officers.
Among the “asks” in the Proposed Complaint which is part of the filing, is a finding that Chatham Asset Management, and the several funds tied up in the financing of McClatchy flor the past couple of years, should have their claims “equitably subordinated” to the unsecured creditorsThat’s legal speak for making more than $600,000,000 go “poof”.
I’m going to talk briefly about this filing but encourage you, gentle readers, to read the filing in its entirety; to understand the machinations of Chatham and the directors and officers, some of which pulled down huge salaries, and to get excited about the possibilities if The Committee is successful, even in part.
This filing is really a two-parter. The first is a request to be allowed to pursue claims which McClatchy, as the debtor, could have, but refused to pursue.
In that first part The Committee lays out what it calls “colorable and valuable” claims which it has uncovered in the past few months, after the Court allowed it to obtain documents and other materials from McClatchy and Chatham.
In the second, it sets out a Proposed Complaint with a number of causes of action against “entity” and individual defendants.
The basic aim is to put the Chatham debt into a position, subordinate (below in priority) to the unsecured debt. Some causes of action seek that relief as to about half the Chatham debt. One seeks that relief as to all Chatham debt.
The complaint is artfully drawn and uses language seldom seen in bankruptcy proceedings. Like when it lists the “badges of fraud”, the conduct which it claims should wipe out the Chatham debt in whole or in part.
It also details what, in a recent piece, I called the hand-in-glove relationship between Chatham and McClatchy management. It says Chatham had far greater access to McClatchy management that the ordinary creditor, or shareholder.
While there are hammer blows, there are also little paper cuts which might cause some hedge fund bleeding. Like when the parent company, The McClatchy Company, signed guarantees on behalf of the 50 plus subsidiaries for $425,000,000 in new debt without having the Boards of the subsidiary companies meet and vote on this move.
In addition to the subordination issues, The Committee is taking aim at other claims for interest, premiums and other such stuff, AND looking at the directors and officers for either breaching their fiduciary duties or aiding and abetting others who were breaching their fiduciary duties.
Mention is made of a $70,000,000 “tower” of insurance which might cover actions against officers and directors.
The bottom line is that it is not going to be smooth sailing for McClatchy and Chatham. Back when the bankruptcy petition was filed, the “plan” was to turn over the company to Chatham and have Chatham, the directors and officers shielded from any liability.
That didn’t fly. The Pension Benefit Guarantee Fund, the US Trustee and unsecured creditors sought to look into what this filing calls the “Suspected Transactions”.
Now that they have had a look at want went on, the knives are out. The “sale” may very well be put off until the issues are resolved.
And who knows what the outcome will be? The only thing which can be said, for sure, it is not the outcome McClatchy and Chatham had in mind.
Read the filing, please, there is so much more in there. Bottom line for qualified pensioners, your pensions are not at risk. For the non-qualified plan beneficiaries, mostly executives of McClatchy and/or those it absorbed or the years, your prospects look much brighter.
The filing is at http://www.kccllc.net/McClatchy. Clock on the Court Docket tile and look at filing No. 546