Long-Term Debt

6 Months Ended

Jun. 24, 2012

Long-Term Debt [Abstract]

LONG-TERM DEBT

NOTE 4. LONG-TERM DEBT

As of June 24, 2012, and December 25, 2011, the Company’s long-term debt consisted of the following (in thousands):

			Carrying Value
	Face Value at June  24, 2012		June 24, 2012		December 25, 2011
Notes:
11.50% senior secured notes due in 2017	$	846,000	$	839,404	$	843,652
4.625% notes due in 2014		66,438		63,726		77,406
5.750% notes due in 2017		286,138		272,167		318,624
7.150% debentures due in 2027		89,188		83,087		82,891
6.875% debentures due in 2029		276,230		255,517		254,903
Long-term debt	$	1,563,994	$	1,513,901	$	1,577,476

During the six months ended June 24, 2012, the Company repurchased $70.5 million of notes in privately negotiated transactions, as follows (in thousands):

	Face Value
11.50% senior secured notes due in 2017	$	5,000
4.625% notes due in 2014		15,000
5.750% notes due in 2017		50,500
Total notes repurchased	$	70,500

The Company repurchased most of these notes at a price lower than par value and wrote off historical discounts related to the notes it purchased, which resulted in a gain on extinguishment of debt. This gain was offset by the write-off of fees related to the amendment of the Credit Agreement that reduced the size of the credit facility, as discussed below. These combined events resulted in a net gain on the extinguishment of debt of $1.7 million and $6.1 million for the three and six months ended June 24, 2012, respectively.

The Company’s outstanding notes are stated net of unamortized discounts (totaling $50.1 million and $57.0 million as of June 24, 2012 and December 25, 2011, respectively) resulting from recording such assumed liabilities at fair value as of the June 27, 2006 acquisition of Knight Ridder, Inc. and the issuance of the 11.50% senior secured notes due in 2017 at an original issue discount.

Debt Refinancing:

On January 26, 2010, the Company entered into an amendment and restatement of its credit agreement that became effective on February 11, 2010, immediately prior to the closing of an offering of $875.0 million of senior secured notes, referred to as the 2017 Notes, as described below. The Amended and Restated Credit Agreement required a substantial reduction in bank debt and allowed for the early retirement of other bond debt using the proceeds of the secured notes offering. The Company was in compliance with all financial covenants of the credit agreement at the time of the refinancing.

In connection with the Amended and Restated Credit Agreement, the Company issued new 11.50% senior secured notes due February 15, 2017, totaling $875.0 million (the 2017 Notes). The 2017 Notes are secured by a first-priority lien on certain of McClatchy’s and the subsidiary guarantors’ assets and rank equally with liens granted under McClatchy’s Amended and Restated Credit Agreement. The assets securing the debt are unchanged from the original credit agreement and include intangible assets, inventory, receivables and certain other assets.

On December 16, 2010, the Company entered into an amendment of the Amended and Restated Credit Agreement (the Credit Agreement) to, among other things, remove certain restrictions on the ability to repurchase its publicly traded bonds, to repay the remaining bank term loans and to reduce the lenders’ revolving loan commitments under the Amended and Restated Credit Agreement.

On June 22, 2012, the Company further amended the Credit Agreement to reduce the size of the revolving loan facility from $125.0 million to $36.1 million to cover the Company’s issuances of standby letters of credit and to extend the maturity of the Credit Agreement to January 31, 2015. The new committed amount will only be available for the issuance of standby letters of credit. At June 24, 2012, the Company had outstanding letters of credit under the Credit Agreement totaling $36.1 million securing estimated obligations arising from insurance claims.

Fees for letters of credit under the Credit Agreement range from 425 basis points to 575 basis points. In each case, the applicable spread is based upon the Company’s consolidated total leverage ratio (as defined in the Credit Agreement). A commitment fee for the unused credit commitments is priced at 50 basis points to 75 basis points based upon the Company’s consolidated total leverage ratio (as defined in the Credit Agreement). As of June 24, 2012, the Company paid fees on the letters of credit under the Credit Agreement at a rate of 425 basis points and no significant unused commitments existed.

The Credit Agreement contains quarterly financial covenants including requirements that the Company maintain a minimum consolidated interest coverage ratio (as defined in the Credit Agreement) of 1.50 to 1.00. The Company is required to maintain a maximum consolidated leverage ratio (as defined in the Credit Agreement) of 6.25 to 1.00 from the quarter ending in June 2012 through the quarter ending in December 2012, decreasing to 6.00 to 1.00 thereafter. Under the Credit Agreement, the Company is required to maintain at least $10.0 million of cash equivalents (as defined in the Credit Agreement) as of the last day of each fiscal quarter beginning in the quarter ending in December 2012 and thereafter. The Credit Agreement includes limitations on additional debt.

The Credit Agreement also prohibits the payment of a dividend if a payment would not be permitted under the indenture for the 2017 Notes (discussed below). Dividends under the indenture for the 2017 Notes are allowed as a “Restricted Payment” if the consolidated leverage ratio (as defined in the Credit Agreement and the indenture) is less than 5.50 to 1.00 and the priority leverage ratio (as defined in the indenture) is less than 3.25 to 1.00.

At June 24, 2012, the Company was in compliance with all financial debt covenants. Because of the significance of the Company’s outstanding debt, remaining in compliance with debt covenants is critical to the Company’s operations. If revenue declines continue beyond those currently anticipated, the Company expects to continue to restructure operations and reduce debt to maintain compliance with its covenants.

Senior Secured Notes:

The 2017 Notes are governed by an indenture entered into on February 11, 2010, which includes a number of covenants that are applicable to the Company and its restricted subsidiaries. The covenants are subject to a number of important exceptions and qualifications set forth in the indenture for the 2017 Notes. These covenants include, among other things, restrictions on the ability of the Company and its restricted subsidiaries to incur additional debt; make investments and other restricted payments; pay dividends on capital stock or redeem or repurchase capital stock or subordinated obligations; sell assets or enter into sale/leaseback transactions; create specified liens; create or permit restrictions on the ability of the Company’s restricted subsidiaries to pay dividends or make other distributions to the Company; engage in certain transactions with affiliates; and consolidate or merge with or into other companies or sell all or substantially all of the Company’s and its subsidiaries’ assets, taken as a whole.

Substantially all of the Company’s subsidiaries guarantee the Company’s obligations under the Credit Agreement and the 2017 Notes (together, senior secured debt). Each of the guarantor subsidiaries is 100% owned by The McClatchy Company. Following the sale of land in Miami (see Note 2) on May 27, 2011, the Company has no significant independent assets or operations separate from the subsidiaries that guarantee its senior secured debt. The guarantees provided by the guarantor subsidiaries are full and unconditional and joint and several, and any subsidiaries of McClatchy other than the subsidiary guarantors are minor.

In addition, the Company has granted a security interest to the banks that are a party to the Credit Agreement and the trustee under the indenture governing the 2017 Notes that include, but are not limited to, intangible assets, inventory, receivables and certain minority investments as collateral for the debt. The security interest does not include any land, buildings, machinery and equipment (PP&E) and any leasehold interests and improvements with respect to such PP&E, which would be reflected on a consolidated balance sheet of the Company and its subsidiaries and shares of stock and indebtedness of the subsidiaries of the Company.

The following table presents the approximate annual maturities of debt as of June 24, 2012, based upon the Company’s required payments for the next five years and thereafter (in thousands):

Year	Payments
2012	$	—
2013		—
2014		66,438
2015		—
2016		—
Thereafter		1,497,556
Debt principal	$	1,563,994