It’s been a very public possibility for months, but this morning it became official: McClatchy, America’s second-largest newspaper chain, is filing for bankruptcy. (You can find the legal filings here.)

Here’s The New York Times:

McClatchy, the publisher that operates The Miami Herald, The Sacramento Bee and other newspapers, filed for bankruptcy protection on Thursday, saying it planned to restructure the debt it has struggled with for years. In a Chapter 11 filing in New York, the company, which is one of the largest news publishers in the United States, said its 30 newsrooms would continue operating as usual during the case.

The Washington Post:

The Chapter 11 filing will allow the Sacramento-based company to keep its 30 newspapers afloat while it reorganizes more than $700 million in debt, 60 percent of which would be eliminated under the plan. If the court approves, it would also hand control of the 163-year-old family publisher to a hedge fund, Chatham Asset Management, its largest creditor. The filing foreshadows further cost-cutting and retrenchment for one of the biggest players in local journalism at a time when most American newsrooms already are straining to cover their communities. About 20 percent of all U.S. newspapers have closed since 2004, according to a recent report from PEN America, and the sector has shed 47 percent of its jobs.

And McClatchy’s own Sacramento Bee, the newspaper that started the chain in 1857:

The Chapter 11 filing will allow McClatchy to restructure its debts and, it hopes, shed much of its pension obligations. Under a plan outlined in its filing to a federal bankruptcy court, about 60 percent of its debt would be eliminated as the news organization tries to reposition for a digital future. The likely new owners, if the court accepts the plan, would be led by hedge fund Chatham Asset Management LLC. They would operate McClatchy as a privately held company. More than 7 million shares of both publicly available and protected family-owned stock would be canceled. “While this is obviously a sad milestone after 163 years of family control, McClatchy remains a strong operating company and committed to essential local news and information,” said Kevin McClatchy, chairman of the company that has carried his family name since the days of the California Gold Rush. “While we tried hard to avoid this step, there’s no question that the scale of our 75-year-old pension plan — with 10 pensioners for every single active employee — is a reflection of another economic era.”

(It’s oddly comforting that the McClatchy story is by far the best and most detailed of the bunch.)

Call me old-fashioned, but it still seems a little weird for a bankruptcy to be accompanied by an explainer YouTube video.

Negotiations with creditors intensified late last year. In addition, just weeks ago, Congress — in a last-minute about-face — excluded McClatchy from newspaper pension relief that would have prevented the company from having to choose among paying bond holders, meeting pension requirements or seeking bankruptcy protection… Not only has the business model changed for newspapers, legacy companies carry large pension obligations that eat into cash flow and profits. McClatchy’s qualified pension covers more than 24,500 current and future retirees — many retired blue-collar workers who manned printing presses or loaded newspapers onto delivery trucks — supported by fewer than 2,800 active employees. Between 2006 and 2018, McClatchy’s advertising revenue fell by 80 percent and daily print circulation fell by 58.6 percent. While the company has worked over three years to achieve a more sustainable 50-50 split of print vs. digital advertising, those gains couldn’t outpace the approaching pension and debt obligations.

Our Ken Doctor has written at length about McClatchy’s path to this day, the final stage of which began in November , when a filing revealed that the feds were not being optimally cooperative with McClatchy’s attempts to relieve itself of some of those pension obligations. It asked the IRS for a waiver to let it skip a pension payment; the IRS declined. It asked the federal Pension Benefit Guaranty Corporation to take over those obligations and cap McClatchy’s potential outflow. That didn’t work out either. Here’s today’s McClatchy story , which is by Kevin G. Hall

Like all problems in the newspaper business the past decade, one proposed solution has been “merge with another newspaper company.” McClatchy twice made dalliances with Tribune — which would in some ways be an ideal partner, with a good mix of properties, a comparable corporate culture, and (most importantly) a relatively clean balance sheet. But trouble coming up with financing scuttled a Tribune deal.

When talk of a McClatchy bankruptcy got serious a few months back, the expectation was that it would likely be a pre-pack bankruptcy — meaning that the details of which debt goes away, whose debt gets restructured, and what the company looks like on the other end of Chapter 11 are already settled at the time of filing. That would let the process be relatively quick.

Unfortunately, according to Hall, “McClatchy and its creditors fell short of a fully pre-arranged bankruptcy, leaving open the possibility of a legal battle that could drag out. But the company reached substantial agreement on major issues.”

Aside: I won’t summarize it here, but Hall has a good tick-tock (not TikTok) about how Congress could have solved a portion of McClatchy’s problems by extending the period it had to fund its pension obligations from 7 to 30 years. But it fell prey to the sort of dysfunction most things in Washington do these days.

So now what?

Let’s assume the bankruptcy, despite its non-complete pre-packedness, goes through according to plan and with relative speed. The New McClatchy would be controlled by Chatham Asset Management, a hedge fund that is currently the company’s largest shareholder and lender. Chatham hasn’t been as prominent a player in the American newspaper industry as Alden Global Capital, Fortress, or Apollo. It issued a milquetoast statement on the bankruptcy. (“As a supportive investor in McClatchy since 2009, Chatham is committed to preserving independent journalism and newsroom jobs. We look forward to working with the company in the best interests of all stakeholders.”)

Chatham, though, has some other connections to the news business that sound a bit less high-minded. It is controlling owner of American Media, Inc., the company best known as the owner of the tabloid National Enquirer — not long ago seen engaging in a hush-money scheme with Donald Trump and some sort of…questionable relationship with the Saudis and the hacking of Jeff Bezos’ phone. The National Enquirer is currently a Chatham-controlled company.

(Last April, AMI agreed to sell the Enquirer to James Cohen of Hudson News for $100 million. But, as Keith Kelly has reported, that deal does not seem to have yet closed, for unclear reasons. So it’s still part of AMI and still 80 percent owned by Chatham. In what is no doubt completely unrelated news, Chatham and Hudson News together control nearly all newsstand distribution in America, and there’s long been talk about some helpful combination of their positions.)

Chatham was founded by and is run by Anthony Melchiorre, by all accounts a successful (if abrasive) investor and a longtime Republican donor. I in no way claim to be a Chathamologist, so I’ll just quote from some pieces that have been written about Melchiorre and his company. Here’s a good one from Bloomberg, by Gerry Smith, Katherine Burton, Shahien Nasiripour, and Allison McNeely:

David Pecker, America’s tabloid king, owes a lot to his old friend Donald Trump. But when Pecker arrived at the White House in July 2017 for dinner with the president, he owed even more to the financier that accompanied him: Anthony Melchiorre. Pecker, chairman of American Media Inc., has since been drawn into a Trumpian drama worthy of the National Enquirer, his flagship supermarket tabloid. He has emerged as a key witness in the months-long investigation into payments to two women who said they had affairs with Trump. Melchiorre, by contrast, has remained all but invisible — which is precisely how he tends to operate. Melchiorre and his $3.9 billion hedge fund, Chatham Asset Management, are the money behind American Media. Two years before Trump’s stunning rise to the presidency, Melchiorre threw a financial lifeline to Pecker’s company and walked off with about an 80 percent stake.

(A financial lifeline for a media company — well, “media” company — that turns into equity and majority control. Sound familiar?)

Even by hedge-fund standards, Chatham flies under the radar. But at a time when traditional newspapers are struggling, Melchiorre has emerged as an unusual — and unusually successful — player in old-school print media. His firm has also invested in McClatchy Co., whose titles include the Miami Herald…Melchiorre and Pecker didn’t respond to requests for comment. An American Media spokesman said: “No one in the past 20 years has been more supportive of the print and publishing industry than Chatham Asset Management. The continued support and partnership of Chatham and [billionaire investor Leon] Cooperman have been an extraordinary source of stability for AMI and allowed us to remain focused on the future and our continued growth.”

Here’s another Bloomberg piece, this one by Katherine Burton, Sridhar Natarajan, and Shahien Nasiripour:

The threat was blunt: Back off, or there will be trouble. The 2016 presidential campaign had just ended, and Michael Cohen was fresh off handling hush money for Donald Trump. Now he was working for the benefit of Chatham Asset Management, a $4.3 billion hedge fund that owns the National Enquirer. Enquirer publisher David Pecker, whom Chatham had appointed to the board of another of its holdings, had turned to Trump’s fixer as a mediator. The goal was to kill a lawsuit by the former head of that other Chatham-backed company. Before long, the Chatham camp would make good on its threat against that executive, unleashing a tale of sex and money worthy of the Enquirer. Playing tough is the Chatham way. The firm and its founder, Anthony Melchiorre, have a reputation for hard-edged business. “They are scrappy, and they aren’t afraid of litigation to defend their investments,” said Leon Cooperman, a recently retired hedge fund mogul who is a Chatham investor and part owner of American Media, the Enquirer’s publisher. “They make money for their clients.”

Yep, a Michael Cohen sighting. (The story quotes Chatham denying ever “had any relationship with, spoken to or compensated Michael Cohen,” but not denying Cohen’s participation in the meeting, which feels like a thin reed.)

This much is sure: Chatham founder Melchiorre, 51, has a formidable reputation. A Chicago-area kid who studied economics at Northwestern and got an MBA from the University of Chicago, his high-toned education didn’t reduce the intensity of the former high-school football star. After stints at Donaldson, Lufkin & Jenrette and Goldman Sachs Group Inc., Melchiorre landed at Morgan Stanley in 1998 where he rose to head the junk-bond trading group. He built his stature as a temperamental money-maker at the white-shoe firm. His behavior infuriated some senior executives, according to former colleagues. Although not physically imposing, Melchiorre could be foul-mouthed and loud, and would berate fellow traders as he bopped around the trading floor in his stocking feet. “He’s a street fighter,” said Mike Rankowitz, his boss at Morgan Stanley. “There are people who don’t like him. That’s because they are losing to him.” After he departed amid a round of layoffs, Melchiorre quit Manhattan to join the “Jersey Boys,” a clique of hedge funders across the Hudson River that included billionaires Cooperman and David Tepper.

Also important to note: Chatham already has a controlling stake in another big newspaper chain: Postmedia, the largest newspaper chain in Canada. (It owns dailies in Vancouver, Calgary, Edmonton, Winnipeg, Ottawa, Montreal, and Toronto — translation for Americans: every Canadian city with an NHL team — along with the National Post.) As of the company’s most recent financial filing, Chatham owns 66 percent of Postmedia shares and also has a consulting agreement with the company. (Having a separate consulting deal with the company you already own is quickly a classic move for hedge fund/private equity newspaper owners.)

Under different circumstances, merging Chatham’s Postmedia and McClatchy would be a natural in any number of ways. But I imagine the national border between them, as well as Canada’s appropriate concerns about foreign media ownership, would get in the way there under a Trudeau government.

As a columnist at a rival Canadian daily described Postmedia not long ago: “There is a cancer on Canadian journalism. The malignancy is Postmedia Network Canada Corp., a foreign-controlled, debt-burdened contrivance flirting with insolvency that nonetheless is relied upon by about 21 million Canadian readers. Postmedia’s 200-plus media outlets, mostly newspapers, including some of the biggest dailies in the country, represent a far greater concentration of news media ownership than exists in any other major economy. And a degree of foreign ownership of the free press that would not be tolerated in the U.S., France, Japan or Germany. The good news is that the Postmedia abomination, which has never turned a profit, is in such wretched condition that it’s not long for this world. The bad news is that as long as the biggest newspaper publisher in the country clings to life, it is a blight on all the communities it underserves.” That was four years ago; it’s still kicking.

As with AMI/National Enquirer, Leon Cooperman is also along for the ride as an owner of Postmedia. And he’ll also have an ownership stake in McClatchy if the bankruptcy goes according to plan. (You have have recently seen Cooperman, a CNBC fave, not enjoying Elizabeth Warren’s wealth tax.)

Of more direct concern, perhaps, is what Bloomberg reported as persistent rumors around the pricing of Chatham-owned bonds for all three of its media companies, AMI, Postmedia, and McClatchy. Apologies for the long blockquote, emphases mine:

In all three cases, Chatham bought most of the subordinated bonds, plus stock. Those investments amounted to a bet that the companies would acquire competitors and cut costs. Chatham has been restructuring their debt to give them more time. Their bonds, though, haven’t suffered. And given the strains in the print-media business, the strong price of the debt is difficult to explain, traders say. Postmedia, where Pecker sat on the board until last August, has posted annual losses for most of the past decade. Its bonds rarely change hands. Yet its junior bonds offer yields comparable to more senior securities. The notes don’t pay regular interest in cash, a sign of their inherent riskiness. At least five other traders who’ve looked at the bonds say their prices seem too good to be true. A similar story has unfolded at newspaper publisher McClatchy, which has posted annual losses since 2015. Its bonds staged an improbable rally last year, charting a steady climb over 50 percent from 80 to 125 cents on the dollar. That made it one of the best performing bonds in the world at the time. It even offered lower yields than some blue-chip companies. “That’s just not how bond math works,” said Michael Terwilliger, a portfolio manager at Resource Credit Income Fund. “I wouldn’t even begin to consider owning it at that level. Something other than fundamentals are playing a huge factor in those bonds.”

Asked about all this for the story, Chatham responded with a statement that should really be taken as a prediction for McClatchy going forward:

In response to questions about the prices, Melchiorre sent a statement through a representative: “We have tremendous conviction in our fundamental thesis on late stage media consolidation in North America and competitors are free to express opposing views.”

“Our fundamental thesis on late-stage media consolidation in North America.”

That about says it, right? It’s the same message as the bonds “bet”: Chatham has bought up pieces of media companies expecting to profit by consolidating them. It’s tried multiple times with McClatchy, without success. Now it’ll have control of the company and, post-bankruptcy, a relatively clean balance sheet that will make it a more appealing dance partner — and potentially reduce the amount of financing that would need to be scrounged up to make a deal work.

(Note that it’s only a relatively clean balance sheet; McClatchy’s Hall reports that the filing includes $218 million in new debt at a 10 percent interest rate.)

In other words, this looks like more of the same — more of what we’ve seen since Ken presciently announced the start of the Consolidation Games 13 months ago. Gannett has disappeared into GateHouse (which then took its meal’s branding), thanks to money guys Apollo Global Capital, Leon Cooperman, and Fortress Investment Group. MNG Enterprises , having digested Digital First, is back on the prowl, thanks to money guys Alden Global Capital. Speaking of, Tribune Publishing is happily gutting its operations , thanks to money guys Alden Global Capital. Berkshire Hathaway has now been sacrified to Lee , thanks to money guy Warren Buffett.

It’s a lot of money guys making all this happen, not a lot of news people, and the aim for all of them is cutting costs enough to squeeze out cash flow, do enough M&A to maximize efficiencies in the back shop, and…well, enjoy the profits until they stop. I’d expect to see Tribune and McClatchy give it another go, maybe with Lee throwing its hat in too. Or MNG trying to tie up with Tribune, uniting Alden’s two victims. Or all of the above. That’s how, in the span of a few months, the five largest newspaper chains might well become two

And then? Well, remember that the soon-to-be-owner of America’s second-largest newspaper chain sees this moment as “late-stage media consolidation.” It’s hard to look past those two words: late-stage.

It might be appropriate if Melchiorre meant “late-stage” in something like the “late capitalism” sense — “a catchall phrase for the indignities and absurdities of our contemporary economy, with its yawning inequality and super-powered corporations and shrinking middle class.”

But I suspect that Melchiorre’s real underlying meaning is more like late-stage cancer — where the disease has spread too far to be meaningfully combated, and the strategy shifts to reducing pain and keeping patients comfortable as they face death.

I hold out more optimism than that. But it’s not clear that the money men treating local news as a financial instrument to be maximized do.