McClatchy to sell and lease back real property in Columbia, S.C., and Sacramento

McClatchy has entered into separate agreements to sell and lease back real property owned by The State Media Company in Columbia, S.C., and The Sacramento Bee in Sacramento, Calif., for total gross proceeds of $67.8 million.

The State Media Company contracted with a subsidiary of Twenty Lake Holdings to sell its real property including The State building and surrounding land. McClatchy will enter into a 15-year lease with Twenty Lake with initial annual lease payments of approximately $1.6 million.  

In a separate but similar transaction, The Sacramento Bee entered into a transaction with Shopoff Advisors, L.P. to sell its real property which includes The Sacramento Bee building and surrounding land and buildings. Simultaneously with the closing of the sale, McClatchy will enter into a 15-year lease with Shopoff to leaseback the real property with initial annual lease payments of approximately $4.6 million.

This transaction excludes a parking garage formerly owned by The Sacramento Bee, which was sold for $5.75 million in a transaction that closed in December 2016.

These transactions are subject to customary closing conditions and are expected to close in the second quarter of 2017.

Elaine Lintecum, McClatchy's chief financial officer said, "We are pleased that in less than one year of marketing these properties, we were able to collaborate with two strong investors like Shopoff and Twenty Lake to sell the properties at or near our asking prices and lease them back for our operations.

"These sale-leaseback transactions are one more step in moving forward with our real estate monetization efforts to redeploy our capital for better uses for the benefit of our shareholders and bondholders. We generally expect to reduce debt with the proceeds of these transactions."

A repurchase clause included in both of the lease agreements to be entered into at the closing of the transactions will offer an option for the company to repurchase the real property at the end of the 15-year lease term. As a result, the leases are expected to be accounted for under GAAP as financing leases. Lease payments will reduce the related lease obligation on the balance sheet and include interest expense associated with the obligation. 

Upon closing of the transactions, the company is required to first offer the after-tax proceeds from the sales at par to the secured bondholders in accordance with the indenture for its secured 9.0 percent bonds maturing in 2022. Under the indenture for its unsecured bonds, the company has 90 calendar days to reduce debt equal to approximately $48.0 million (subject to change based on market rates at the closing of the transactions), which reflects the attributable debt associated with the leases. Should the secured bondholders choose not to participate in the par offer, the company may alternatively seek to reduce some of its unsecured bonds with the after-tax proceeds in order to meet its 90-calendar-day requirement for debt reduction.

In connection with these sale and leaseback transactions, and certain similar transactions under consideration, McClatchy executed a fourth amendment to its credit agreement. The fourth amendment allows the after-tax proceeds from these sales and leaseback transactions that are not claimed by secured bondholders prior to expiration of a par offer to be used to repurchase any of its unsecured bonds in the open market to meet the debt reduction requirements noted above. The company could also decide to hold cash in excess of required debt reduction amounts on its balance sheet or use the cash for other corporate purposes.

Lintecum added, "Our goal remains to strengthen the company's financial position, which means doing what makes the most economic sense for the company as it pertains to repurchasing debt in the open market. While we would prefer to reduce secured debt, we must adhere to our 90-day debt reduction requirement and are unwilling to pay uneconomic prices in the open market for secured debt."

McClatchy noted that its 9.0 percent secured debt becomes callable in whole or in part as of December 15, 2017, at a price of 104.5 percent.