THIS TIME: WHO DID WE* SHOOT TO DEATH OUTSIDE THAT BUILDING NEAR THE AIRPORT IN LATE SEPTEMBER.

The man shot to death by Stanislaus Sheriff’s deputies in late September was once a star high school athlete, a doting father and a solid wage earner who was brought down by drugs, says the woman who was his girlfriend for about a dozen years.

Are these just the nice things we say about everyone once they die, even if not true? How would she know these things? Well, she says:

–She knew about his athletic feats at a high school in Hollister because the mother of Eloy M. Gonzalez Jr,41, kept newspaper clippings from those days. Swimming and baseball were among the sports in which he starred, according to the clips she saw.

–She knew about his work because she worked at the same time at a Modesto car dealership. She was a cashier and he was a “service writer”, the guy you first see when you bring in your car for maintenance.

–She knew how he was as a father because she lived with him for a time when he had time with his daughter who turned 17 just few days before her dad died behind the bushes alongside a commercial buildings in an industrial tract out by Modesto’s airport. She had watched him as he helped coach his daughter’s soccer team to local championships. (The girl’s name is withheld as she is still a minor)

–She knew about his downward spiral as a result of drug use because she experienced his behavior changes over time, changes which led to the filing of a petition in court alleging threats and abuse as she separated from him in 2017. She just wanted out; just to have his car towed because it blocked her car in their R Street driveway in Newman.

–She knew drug use also cratered Mr. Gonzalez’ relationship with his mother who filed a similar petition after he allegedly pushed her, snatched away her phone and otherwise abused her later in 2017.

Another behavioral change the former girlfriend noted was an irrational fear he had developed. It caused him to carry the hatchet he had with him September 27 during a standoff with deputies behind a document shredding business at 820 Business Park Drive in the Beard Industrial Tract.

She recognized the hatchet because she watched the body camera video posted by the sheriff’s office. Her reaction: “That (the shooting) shouldn’t have happened.” The homeless often carry weapons such as this hatchet for self defense.

We agreed not to identify the woman who has cooperated with us. That seems fair since the sheriff’s office is withholding some basic facts even in the face of a formal California Public Records Act Request.

We also presented written questions. We wanted to know how many deputies were present at the time of the shooting; how many shots were fired, how two deputies sustained minor injuries, and whether the alarm which brought deputies to that location was a false alarm.

We were able to answer that last question by talking to employees of Pacific Shredding and Sonitrol, none of which were authorized to speak to reporters.

Sonitrol, whose stickers warned of audio and video surveillance of the building, had a proprietary system in place. Instead of sensing motion, the sensors picked up sounds which might indicate a break-in. Then, Sonitrol employees at monitors would check the cameras to determine if some improper activity could be verified.

That Sunday morning, just a tick before 5 o’clock, a pounding noise was heard but nothing untoward could be seen on the monitors. Nevertheless, deputies were notified. Ultimately, well after the death of Mr. Gonzalez, it was determined that there had been no break-in. No one has determined the source of the noise.

Many other questions remain unanswered including those we specifically asked and those which might be answered by the documents we sought.

Some of those documents are clearly public records but the Sheriff, through Assistant County Counsel Rob Taro is claiming an exemption which allows for delayed disclosure. Mr. Taro says the requested documents will not be released until late March of next year, or later depending on the outcomes of two investigations.

The Sheriff’s Office is conducting one investigation through its internal affairs division. This administrative action will deal only with any discipline of any of the deputies involved.

The second investigation is underway at the Stanislaus County District Attorney’s Office whose focus is on whether criminal charges might flow from the killing of Mr. Gonzalez.

After this recap of what happened that morning we will talk about future articles:

Sunday September 27, 2020, 5 am, Two deputies arrive and start a “walk around” of the building looking for signs of a break in. As they come around the building’s southeast corner they hear a voice hailing them from behind waist high bushes. They order Mr. Gonzalez to raise his hands, which he does. Then they order him to come out from behind the bushes, which he doesn’t.

He is told other deputies are on the way, including one who has a dog. He is asked what can be done to make him comply with the order to come out and lay on the ground. Apparently, there is nothing.

The other deputies arrive, maybe as many as eight or nine. One is a dog handler and he tells Mr. Gonzalez the dog is going to bite him if he doesn’t cooperate fully. By this time Mr. Gonzalez is sitting down, using one hand to hold his cap to shield his eyes from the glare of the deputies’ flashlights, the other hand is still raised, still empty.

Then a Taser strikes him, the dog clamps on and for the first time the hatchet coms out. Shouting at Mr. Gonzalez not to hurt the dog, the handler draws and fires several times before holstering his handgun and pulling the dog away.

There are two investigations underway. The Sheriff’s Office will do an administrative inquiry to see if any disciplinary action should be undertaken and the District Attroney’s office will look to see if criminal charges are warranted. These questions should be answered:

1. What were the policies in force and effect at the Sheriff’s office? Were the policies in accord with best practices as these standards have evolved? Did these deputies follow the policies and/or standards?
2. Given new laws about the use of force, a change requiring that force be used only when necessary, how will the District Attorney measure the conduct of those deputies who used force? Did the deputies create a situation in which force became seemingly necessary when other approaches might have avoided that?

Tough questions.

*I used the term “We” just to emphasize the fact that these sheriff’s deputies are public employees. We are responsible for their actions. We elect the Sheriff. We elect the Board of Supervisors.

THIS TIME: DID DEPUTIES KNOW WHAT THE GUY WAS BEFORE THEY KILLED HIM? WAS THE CARDBOARD A CLUE?

Was this guy a burglar or just some homeless man sleeping rough in the bushes alongside a commercial building? That question apparently was not answered before he was shot to death by Stanislaus County Sheriff’s deputies just about a month ago.

Still, that question, and others, have not been publicly answered. All we really know it that Eloy Mares Gonzalez Jr. was hit by several bullets fired by two deputies after about an 8-minute standoff. Mr. Gonzalez had refused to come out of his cardboard nest at the side of the building in the Beard Industrial District at about 5 o’clock on that Sunday morning.

There were 8 or 9 deputies pointing pistols, a shotgun and Tasers at the 41-year-old man, along with a barking police dog pulling at the leash of his handler. Then the deputies ran out of patience, shot him with the Taser and “sicced” the dog on him. His hands were visible and empty when they rushed him. Once set upon by the deputies and the dog he a pulled a hatchet from among his meager belongings. That’s when they opened fire at almost point blank range.

The information for these first few paragraphs comes from a press release the day of the shooting and from our view of body camera videos released on Oct. 7 with narration by Sheriff Jeff Dirkse.  Obviously, some of that information comes from our interpretation of the videos. It had to because simple questions we asked, like how many shots were fired went unanswered. They wouldn’t even say whether the burglary alarm which brought the first deputies to the scene was a false alarm or signaled an actual break-in. Surely, they knew the answer, if not then, by now.

You can do your own interpretation as the Sheriff’s presentation is available on the Stanislaus County Sheriff’s website. You will be warned that is graphic. It does show a man being shot to death but it is no more graphic, otherwise, than what is on TV, not to mention what is available through ROKU.

Let’s set the scene.

The Beard Industrial District is a large commercial area roughly south of Yosemite Boulevard from El Vista Avenue east well past Claus Road and stretching almost to Empire. Its southern border is the Tuolumne River flood plain. Once thriving, there are now commercial “wounds”—for lease signs on huge building complexes, some of which note that they have more than three acres under roof.

The building we are concerned with is at the western margin of the district, a vacant lot to the west between it and the old county pound. It is part of the River Bluff Business Park, six essentially identical buildings with parking areas in front where there are parking lots and entrance doors. There are shared areas in the rear where each building has ramps and roll up doors. Our incident happened at the southwest corner of the building at the west end of the business park in front of a set of windows and by a set of bushes which are about waist high.

Wait here for a minute while we introduce Mr. Gonzalez.

We said in the first paragraph that he might have been a burglar because he was at least accused of that in the past. His rap sheet is not readily available and Stanislaus County Superior Court has rather terse internet entries about charges and pleas and dispositions. In one case he was charged with burglary but pled to vandalism and the probation terms required him to stay 200 yards away from the Bank of the West in Patterson. So, some form of break-in might have occurred?

His homelessness seems apparent. He was swaddled in cardboard when deputies first encountered him. Clues also come in the first few statements made to deputies including that his father was a Senator and that his father owned the building. Later, referring to the few belongings he had with him he said: “this is all I got.” In addition, other internet records show five evictions and court records show that at least twice he was sued and judgements for eviction were granted.

So, it’s 4:57 am and two deputies are sent to 820 Business Park Drive off Finch Road.  The business there is a document shredding company. There is a veteran deputy and his trainee. They park in the lot on the west side of the building and begin a counter-clockwise walk-around of the building.

They walk through a gap in a line of bushes and head east. Suddenly, there is a voice “hey, what’s up man.” Shining their lights toward the sound they see Mr.Gonzalez standing behind bushes roughly waist high.

Their voices stressed, their language coarse, they demand to see his hands, to raise his hands. He does and they are empty. Then the deputies demand he come out from behind the bushes. This is an ask too far for Mr. Gonzalez.

He sits down, holding his cap with one hand, trying to shield his eyes from the bright lights. His hands are still raised and they are still empty. One of the deputies tells Mr. Gonzalez he is interfering with his reconnaissance of the building to see if there had been a break in. He wants the man to come out and lay on the ground.

Gonzalez is warned that other deputies are on the way and things will get worse for him if he doesn’t comply promptly. There is mention of a dog and bites. He is asked if there was anything that the deputies could do to get him to comply with their demands. This is, apparently the de-escalation effort that the sheriff mentions in his narration of the videos.

Other deputies arrive, including one with a dog. The level of tension seems much higher at this point. The deputy with the dog shouts loudly that he is going to loose the dog and that the dog will bite him. The deputies point a Taser, a shotgun, pistols and teeth at the 41-year old man wearing a t-shirt and shorts. Mr. Gonzalez sits still, his hands still empty. The bushes he is sitting behind has a gap so deputies can see what he is doing.

At this point, there are as many as 8 or 9 deputies present. As far as can be determined none of them has made an effort to determine if there had, in fact, been a break-in. It was this determination which Mr. Gonzalez was impeding when only the two deputies were there. Obviously, those two couldn’t separate given their differing experience level.

But, apparently, based upon what has been disclosed, none of the backup deputies did anything other than confront Mr.Gonzalez.

Unwilling to simply freeze the situation, the deputies attack. One shoots him with a Taser. Another lets the dog loose to bite Mr. Gonzalez. It is then that Mr. Gonzalez apparently pulls a hatchet from his belongings.

The dog handler shouts over and over for Mr. Gonzalez not to hurt his dog. Someone shouts a warning about the hatchet and the guns come out. The dog handler and one other deputy open fire as the bushes are rustled by the thrashing of the dog, clamped hard on Mr. Gonzalez, as trained. Then it is over. The guns are holstered. First aid efforts begin and an ambulance is called for.

The only thing at the scene a few days ago was a pile of dirt. It looks like someone put the dirt down to cover blood stains, like you would for an oil spill on your driveway.

AUTHOR’S NOTES:

Do we see parallels in this death and that of Evin Olsden Yadegar who was shot to death by deputies from this same department in Ripon in late February of 2017. Mrs. Yadegar sat in her parked car and refused to come out. Deputies escalated the situation by breaking her driver’s side window. She reacted and one deputy opened fire. Did we not learn anything from that event?

The word “WE” was used in that last sentence and in the headline to this article because the sheriff’s deputies are OUR employees. Sheriff Dirkse “manages” them but they are public employees and we can ask the best of them. “Monday morning quarterbacking” of events such as these is not only fair, it is required, I submit. When the review is done by what some see as members of the same team, the conclusions are often seen as less valuable.

Is there an independent body which could review both incidents and make recommendations? The Civil Grand Jury?

THIS TIME: Hope Bumps Up Against Harsh Financial Reality As Vulture Hedge Funds Consume The Corpse of the McClatchy Company.

They had hope, these mayors and other civic leaders did in writing to the US Bankruptcy Court Judge presiding over the Chapter 11 proceeding involving the 30 communities served by McClatchy newsrooms, including the Modesto Bee.

Sacramento Mayor Darrell Steinberg was among the first to weigh in and did so in a fashion which would have made any reporter proud:

“As I write this, on the morning of June 17, the Miami Herald website features a story about the reaction to a beloved Black Lives Matter activist being found dead in Tallahassee. At the Sacramento Bee, a veteran business reporter describes how negligence by Pacific Gas & Electric Co. caused a fire in the hamlet of Paradise that killed 85 people and destroyed thousands of homes and businesses. The Charlotte Observer has a story of local leaders pushing for a mask requirement to help stop the spread of Covid-19. The Sun Herald in Biloxi, Miss. Writes about how the City Council in Gulfport voted unanimously to stop flying the state flag because it still features the Confederate emblem.”

He adds, in a later paragraph:

“The reporter assigned to City Hall in Sacramento has covered two five-hour council and commission meetings this week that ran late into the night—and its only Wednesday.”

Others, including Marian Kaanon, CEO and President of the Stanislaus Community Foundation,  joined Mayor Steinberg as he urged the court to: “choose a steward for this company that would build upon the journalistic traditions of two of the most storied names in the business—McClatchy and Knight-Ridder—rather than degrade them.”

There was a hope, up in Sacramento where the McClatchy enterprise was founded and where its current headquarters is, and here in Modesto, and in 30 cities big and small scattered through the country that somehow, someone, some way would step up and wrest the chain from the clutches of the hedge funds which made the highest bid in the bankruptcy sale.

But that hope was dashed when no White Knight bidder appeared. The Court now has before it the winning bid “sponsored” by one set of hedge funds and a backup bid by a hedge fund who signaled mass layoffs as one of its first moves if awarded the prize.

(More about the proposed sale, including the bid, the backup did, employee retention and other details, follows this piece)

A false glimmer of hope may have arisen from the fact that the bid was announced to be $312,000,000. At that number, maybe communities had a chance to pick off its paper, keeping the local focus.

The harsh, brutal reality is that the $312,000,000 number is not the real number. I apologize in advance for utilizing the concept behind the Pick-N-Pull Corporation to explain the reality.

Pick-N-Pull buys wrecked (salvaged is the polite term) vehicles and sells off the bits and pieces which were undamaged. The idea being that they should be able to get at least as much from the aggregate sales of the parts as they paid for the wreckage.

They cannot get less! That would be a loss, although paltry compared to what is at stake here.

When McClatchy hit the courthouse with its bankruptcy filing it had debt of just over $700,000,000 owed to hedge funds, primarily Chatham Asset Management (CAM) managed funds.

That money is not going to just go away. It’s not CAM’s money. It belongs to investors, all of whom chipped in at least $1,000,000 to participate in one or more of the funds registered in New Jersey or the Cayman Islands.

In my analogy, that is the cost of the salvaged wreck. This is the amount, in the aggregate, which the high bidder must get in order not to lose money. And CAM has a fiduciary duty not to favor one investor over another so it can’t play favorites.

So, the $312,000,000 bid buys the company but rest assured the balance owed to the hedge fund will be appended, if not now, then in the future.

Maybe it is clearer if you know that the $312,000,000 is not really all new money. It is composed to two elements, rounded, $261,000,000 in a credit bid and, rounded, $50,000,000 in cash. The credit bid is in the form of a release letter, basically excusing payment of the First Lien Notes in roughly that same amount. The cash is real but second in line for use of that money, after paying some costs of the bankruptcy proceeding, is payment of accrued interest on the hedge fund notes.

So, if a White Knight had put in a qualified initial bid and showed up at the auction to overbid, it would have faced counter bid after counter bid from the hedge fund which had to protect all its investors.

The Knight Foundation was understood to have some interest but it knew who and what it would have been bidding against and did not submit a final bid.

Before you abandon all hope, let me shine a dim light on a possibility for local purchase of one of the newsrooms: It may be that one of the 30 newsrooms is a “bleeder” which must be tied off. If there is a newsroom which simply cannot, once the effect of the pandemic is gone, produce more income than expense, perhaps the high bidder would consider a sale at a reasonable price.

You see the problem: The newsroom would only be offered for sale if it is a sure money loser, now and in the foreseeable future. A non-profit would be a possibility but if income and expense balanced, why would they sell?

If you can come up with a better analogy, please employ it.  This was the best I could do. And now for:

Sale Details:

1. The “Purchase”: While press releases and statements have all called it a sale to Chatham, the actual filing list the “Purchaser” as SIJ Holdings LLC, a limited liability corporation which was registered in Delaware as formed on June 30, 2020. The address listed in the registration is the same address in New Jersey as Chatham.
2. Transferred Employee Pay And Location: Every employee will get an offer of employment to work in the same position at a location no more than 50 miles from the current work location and under “substantially he same terms and conditions in the aggregate as provided to such individual” now. Those terms and condition would be good for at least a year.
3. Employee Retention: “For a period of ninety (90) days after the Closing Date, the Purchaser shall not engage in any conduct which would result in an employment loss or layoff for a sufficient number of employees of the Purchaser which, if aggregated with any such conduct on the part of the Sellers prior to the Closing Date, would trigger the WARN Act.” The WARN Act is found in both federal and state laws and generally covers “mass layoffs” although mass can be as low as 30 depending on the size of the business.

 

 

THIS TIME: The Dead Deputy Gets The Blame For The Crash Which Took His Life. Fair Or Unfair, You Decide.

Stanislaus County Sheriff’s Deputy Antonio Hinostroza was killed when his patrol car slammed into a signal pole at Claribel and Terminal south of Riverbank  on November 25, 2018 while speeding to join in the pursuit of a drunk driver.

This week the Central Division of the CHP released a 219 page final report fulfilling a public records act request made many months ago. More than 58 pages of that report were redacted—blacked out—including virtually all of the opinions and analysis portions created by its specialized accident investigation team.

(A discussion regarding the redactions and my efforts to get the entire report will follow this story.)

We are left with a detailing of facts regarding the crash with a jump to conclusions which fault Deputy Hinostroza and ignore any role played by roadway conditions, conditions which could explain why the deputy lost control of his car and was unable to regain it.We now have more detail about the deputy’s actions leading up to the crash, although some of those details appear contradictory given the redactions.

Deputy Hinostroza came on duty at 7 pm, then left the sheriff’s facility south of Modesto at 8 and was in the Village One subdivision on Sagemill north of Glencrest at 9:52, when he was called to join in a pursuit of a suspected drunk driver.

A couple of minutes before, the dispatcher got a call about someone apparently passed out in a car near Oakdale and Patterson Roads, just west of Riverbank. When the first deputy arrived the Cadillac Escalade sped away and the chase was on. Trailing the chase, or trying to intercept, which is not clear, Deputy Hinostroza wended his way out of the subdivision’s warren of residential streets, finally getting onto Sylvan then onto Roselle.

On Roselle, south of Claribel the CHP narrative section of the report has him going 109 mph. However speed data in another un-redacted portions of the report has him going about 20 mph slower. Neither speed would be uncommon when involved in a chase with red lights flashing and siren screaming, according to a survey of chase reports done recently.

After turning right onto Claribel the Deputy was going 77-83 mph and he was approaching a unique roadway object, perhaps dangerous in design as well as when not properly maintained, as was the situation that NIGHT.

I emphasized the word “night” because this was a nighttime crash and as best we can tell, the CHP’s crack accident investigation never made an effort to see what Deputy Hinostroza would have/could have seen AT NIGHT as he approached the intersection of Claribel and Terminal.

This is an intersection made awkward by the proximity of the intersection with the BNSF railroad tracks which parallel Terminal and cross Claribel. According to records from 2014, 30 freight trains and a dozen passenger trains go through this crossing daily. At that time Claribel had an average daily traffic count of 10,140, east and westbound.

In the past, the intersection was controlled by four way stops for vehicle traffic at the intersection itself and flashing lights and arms controlling Claribel traffic as well. There was a real or perceived problem when traffic backed up on eastbound Claribel, especially when a train was approaching. It was thought that cars would cross the double yellow line on eastbound Claribel to go around the line of cars, perhaps to beat the train.

So, a project was begun in 2014 and completed in April of 2016. The project, reflected in “as built plans” coordinated the intersection signals with the crossing arm and flashing lights of the railroad crossing, put a number of islands at the intersection to channel traffic through turns at the intersection and installed a raised median barrier between the eastbound and westbound lanes west of the tracks.

It is this barrier that certainly played a role in the fatal crash. That is without controversy. The collision between the left side tires and the barrier caused the loss of control of the Crown Victoria. Why the Deputy didn’t avoid the collision with that barrier is what is at issue. The plans call for a concrete barrier 8 inches high, 11 inches wide at its base and 9 inches wide at the top. The barrier was 150 feet long. It was supposed to be painted with reflective paint and delineators ( approximately 3 foot high long plastic pipes) mounted along the top of the barrier.

At the time of the crash, photographs show and the CHP noted, the yellow paint was faded and degraded and the delineators were gone. The CHP noted markings along the length of the barrier from collisions with the barrier, including tire rubbings. There were at least two accidents in the years between the project completion and our crash involving the barrier.

(The County, in a written answer to questions from the CHP said that a modular median barrier with delineators had been installed in 2012 where the 2016 project barrier was to be constructed by Reid Engineering, in the plans, said the barrier was replacing striping, not an existing barrier. As we will see, if a modular barrier was in place before, perhaps that’s what should have been there as the deputy approached.)

So, Deputy Hinostroza is behind the  wheel of that patrol car. He is going eastbound on Claribel at 77-83 mph, lights flashing and siren sounding, the street markings consist of a white edge line to the right and a double yellow centerline. Additionally, the eastbound lane is substandard in width. It measures between 10 and 11 feet. A standard freeway lane is at least 12 feet wide and much wider if there is a curb at the edge. Often at high speed, a pursuing law enforcement officer will cheat a little into the opposite lane to avoid some of the effect of the crown of a roadway.

As he nears the Terminal Avenue intersection he has to make a decision whether to turn right onto Terminal of go straight through the intersection. It would seem that he planned to go straight, otherwise he would have slowed. The right turn onto Terminal is sharp, and right after crossing railroad tracks. What does he see in his headlights? We know what he doesn’t see. He doesn’t see delineators and he doesn’t have the benefit of reflective paint on the barrier. It is certainly conceivable that want he thought was ahead was just a continuation of the center stripe.

The CHP,  in laying all the blame on the Deputy postulates, that at about the time he was approaching the barrier he was momentarily distracted because he made an entry into his patrol car’s computer– he pushed a button which noted he was “enroute”. This, the CHP says, caused him to drift to his left, allowing his car’s left side tires to strike the barrier. The question unanswered, at least in that portion of the report not blacked out is whether the deputy would have done anything but focus straight ahead if he had been given any visual clue that the barrier existed.

It is in this aspect of the reconstruction that there is an apparent deficiency. The CHP notes that the sight distance is basically, for all practical purposes, unlimited IN DAYLIGHT. But, this crash was not in daylight. So, we have to question why no effort was apparently made to determine what the deputy could have seen. Maybe the CHP team did make such a visibility study. If so, when they assessed fault, you would have expected that the visibility of the barrier would have been discussed and dismissed. They have assumed what was in the deputy’s head without trying to determine what the Deputy saw, or didn’t see, or could see.

Those portions of the report provided are not critical of the roadway even though the barrier is unusual and was clearly not maintained as intended. One member of the CHP team is a Caltrans engineer. His analysis and opinions, if any, are not disclosed. This median barrier is different than seen in similar settings. There are a number of barriers in use which cause less interference with a driver’s ability to control the car if the barrier is encountered. An example is the very next roadway crossing to the north, the Patterson Road BNSF crossing.

This crossing has delineators which were just like those originally placed atop the barrier on a Claribel but which were not maintained. The CHP asked the County for maintenance records for the barrier,  but the county apparently could not produce any. The delineators aside, the barriers are different in two other aspects, height and width. A car which strayed over the barrier on Patterson Road could easily steer back into the lane of traffic.

That would not be possible on Claribel. In our crash, the patrol car struck the end of the barrier, 11 inches wide, with both left side tires. They were flattened on impact, the steel rims deeply indented, and the patrol car straddled the barrier. Even if they had not been flattened the patrol car would still have been stuck on the wrong side of the barrier. According to published specifications for the 2009 Crown Vic, the minimum ground clearance is less than 6 inches and the barrier is 8 inches high. So the sedan was “high centered” on the barrier.

The CHP concluded, as I postulated in an article a few days after the crash, that as his patrol car scraped along the barrier, the deputy tried to turn back to the right. This steering input caused the sedan to veer to the right once it cleared the barrier, and sent it into the signal light pole. Deputy Hinostroza was killed instantly.

It was apparent to just about everyone that the barrier played a significant role in this tragedy. County public works’ crews were out within days repainting the barrier that bright yellow pain and installs a reflective paddle marker at each end. It wasn’t long, however before one of those markers disappeared, evidence that cars or trucks were still rubbing alongside or over the concrete. While the exact set of circumstances is unlikely to present itself in the future, something similar could occur. Now that traffic lights have replaced the stop signs at the intersection, traffic can flow through the intersection at relatively high speed. And, given the narrow eastbound lane, striking that 8 inch high barrier would be unpleasant, at least.

This question has to be asked: Why not use the same device, a much lower barrier with delineators, as is being used at the Patterson Road crossing, the next BNSF roadway crossing to the north, instead of an 8 inch high concrete barrier (rebar reinforced). The height of the barrier damages any car which strikes it end-on and the height precludes recovery into the eastbound lane.

Fair conclusion by the CHP, or not?

Trying to get the information: The vehicle code allows a “person with a proper interest” to obtain a copy of the entire report. That code section lists persons who have a proper interest but the language says the listing is ” not limited to” those enumerated. We believe a journalist has a proper interest in this report because it involves the death of a public employee, killed on duty and  with the possible involvement of a defect in a public roadway. After receiving the report with 58 redacted pages we wrote to the Central Division Chief, listing the reasons why the report should include the additional information. We have received a response from the chief of the Office of Risk Management denying any additional information because we are not specifically listed in the  vehicle code section. The chief goes on to quote a provision of the law which says the CHP is not required to disclose the investigator’s analysis and opinions.

Right, not required to disclose, not forbidden to disclose!

We have been trying to obtain this report since March of 2019. The report itself says it was “released for publication” in  December of 2019. We received the report on July 9 ,2020.We waited until we received a response to a follow up letter which was received July 17 which denied further information.

 

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THIS TIME: The Unsecured Creditors Think McClatchy’s Hedge Fund Buddies Should Pound Sand

 

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.

Karma?

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

THIS TIME: Updating The McClatchy Bankruptcy

This continues my speculative, continuing analysis of the bankruptcy of the parent company of The Modesto Bee.  Time hasn’t assuaged my fear that we will eventually lose the print edition. Loss of the paper will also mean, as a practical matter, loss of other papers. Due to sorting errors of the Bee’s carrier, I have come to learn that some of my neighbors subscribe to The Bee and the Wall Street Journal; The Bee and the San Francisco Chronicle and The Bee and the New York Times, my combo. If The Bee isn’t delivered, the others won’t be either. Remember when you used to get other Saturday papers?

McClatchy and Chatham Asset Management,along with some smaller hedge fund creditors, hoped to slide a bankruptcy plan through the federal court, but some sophisticated creditors and a tiny virus has slowed, if not derailed their hopes.

It is clear that McClatchy has been hand-in-glove with its hedge fund creditors before and into bankruptcy. What is less clear is whether the fit is voluntary or at financial gunpoint.

Their coordinated moves began back in the spring of 2018 when, according to a filing with the SEC, a “term sheet” was disclosed that roiled the Credit Default Swap (CDS) market, a move that some called “market manipulation.”

What was proposed was the creation by McClatchy of a brand new entity, a limited liability corporation. The debt of the old corporations would be shifted to the new corporation. The creation of the new corporation could only be done with the cooperation of McClatchy and the shifting of debt only with the cooperation of the lenders.

The problem with, and the probable reason for, this scheme was that it would “orphan” as much as $500 million in CDS contracts. In another SEC filing, Chatham Asset Management said it was a party or counter-party to CDS contracts involving McClatchy.

The premise behind CDS contracts is that a going concern would attempt to make good on all its debt obligations and the market for those betting for or against defaults would be “efficient”…governed only by market forces.

By moving all of the old debt off McClatchy’s books and onto those of a new corporation, the possibility of a default became zero and those paying premiums could never collect. Hence the term “orphaned”.

The term sheet transaction was never completed because of the hue and cry about market manipulation, but because both McClatchy and Chatham had to agree on the move it might have been the first clear signal that default was on the horizon.

Chatham faced massive losses. In the event of a forced debt restructuring, such as through Chapter 11 bankruptcy, some of the debt was not then secured by McClatchy assets.

So, in the following summer, July of 2018, there was a reshuffling which moved about half of the roughly $600,000,000 debt from unsecured to secured.

It was this move which prompted the Pension Benefit Guarantee Corporation and the Official Committee of Unsecured Creditors to ask the bankruptcy judge to be allowed to tip toe through the records of both McClatchy and Chatham regarding the CDS activity and the unsecured-secured debt switch.

Evidence from the CDS shenanigans might impact the view of the debt conversion. The hand-in-glovidness of one action might show the conversion to be the kind of transaction which could be effectively set aside in the bankruptcy. This would mean that the secured debt would be about $300,000,000 not $600,000,000.

This difference could make room for the PBGC to get more than was originally offered in the plan. As a practical matter, the unsecured debtors will be lucky to get even pennies on the dollar, no matter how the bankruptcy winds down.

In opposing the motion to obtain the documents, McClatchy and Chatham said “nothing here to see”, claiming the CDS thingie was irrelevant and that the debt conversion was done in the normal course of refinancing, with others invited to participate. Right, anyone want to loan $600,000,000 to a company which hadn’t made a profit in years and was in a dying if not dead industry?

According to filings late last week, as much as $725,000 has already been spent investigating the two transactions.

Further evidence of the hand-in-glove approach from the debit and major creditor arose when the two tried to slide through a “stipulation”  which would have amounted to a simple foreclosure. In response to other issues, McClatchy and the hedge funds had  “stipulated” to a foreshortened timeframe for a sale with the hedge fund making a credit bid in exchange for 97% of the stock.

Since the “stipulation” did not include all the interested parties, the court did not buy into the plan and instead set up a longer timeline and opened the window to other potential bidders. Last week, a deadline for potential bidders to submit letters of initial interest passed. McClatchy’s bankruptcy managers refused to say how many, if any, letters were received.

Apparently two kinds of bids were contemplated. One is an outright purchase of all assets, free and clear of all liens. The other is a “plan bid”. In a plan bid a “sponsor” takes over the plan.

No matter what kind of bid is submitted, and no matter the amount, the judge has the final say. As the judge does with termination of the pension plan. If the judge decides there is some form of plan which allows the reorganized company to retain the plan, it can so find, and halt the pension termination process. The court is not restricted to looking only at a plan submitted by a gloved hand.

The new Coronavirus has caused much concern for the hedge funds. Seeing themselves as the ultimate owner of a reorganized McClatchy, they have pushed to limit the amount spent during the pendency of the bankruptcy proceeds, reserving objections to fee and cost requests from those representing other creditors.

The hedge funds recognize that McClatchy can and will burn through cash at an increased rate since revenues have plummeted.

But, for the gloved hand it seems like the biggest surprise is the tenacity of the pension guarantee folks. It is a tenacity which is subtle and nuanced in its approach. For example, in a recent filing it simply laid out for the court what the court had to find before the pension plan could be terminated.

That pleading had a single emphasized word: “any”, in italics. Some briefs have a plethora of emphasized words and the emphasis is diminished by their frequency. Not this brief.

What they told the court was that the court must examine whether termination could be avoided not in any plan proposed by the debtor, but in “any” plan. So, the court could look through the potential sale and decide to delay confirmation of the sale while the unsecured to secured transaction is litigated. If that conversion in priority could be set aside, a plan could be conceived which dealt only with a secured debt half of the current claim.

But that may be months away. McClatchy asked for an extension of the time in which it, and it alone as debtor-in-possession can propose a plan. It takes that period into October. By this time next year, hedge funds could control all but a handful of daily newspapers. Tribune Publishing is feeling the pinch as time passes and the hedge funds which own much of the stock is allowed to buy more.

The third largest shareholder of Tribune made an interesting proposition the other day: sell off the individual papers to local ownership. It is not known whether any bid for McClatchy could be for individual papers but the current framework is all or nothing. Sacramento’s mayor asked the court to consider as a factor in any bid, local ownership of the Sacramento Bee and, impliedly. the other two Bees.

Back to why the hand is in the glove, unwilling as I am to drop that metaphor.  The hand…McClatchy…may have slipped into that glove willingly, at gunpoint or for reasons somewhere in between.

Chatham is managed by Anthony Melchiorre, once a hard charging trader and now the front man for funds worth many billions. He is known as a shrewd and hard headed investor, although how and why Chatham came to own about $30,000,000 in McClatchy stock (purchase vale) which will be worth about zero no matter how things turn out, escapes me. Certainly he reaped no dividends since McClatchy hasn’t paid out any in about a decade.

He potentially wields the proverbial carrot and stick. For at least two years, it has seemed probable that Chatham would own McClatchy, inside our outside,  a restructuring. So McClatchy management probably wouldn’t want to piss him off. He could put pressure on management, before and after a bankruptcy filing, without saying a word.

Some of those folks at 21st and Q were doing quite well. Craig Foreman, CEO, President etc. made right at $1,000,000 in salary plus more than $400,000 for housing and travel in the year leading up to the bankruptcy filing. In that same period—12 months— he got bonuses of more than $3,400,000. Me, I wouldn’t have put in for that $26.99 expense reimbursement.

If McClatchy was going to need someone at the helm after bankruptcy, there was already somebody there, someone might have thought.

So what’s next. Well, maybe someone has a really creative idea but in any event it looks like the family shareholders are no longer going to be in control and those in control are probably going to be more interested in tying off the bleeders, cutting where they can and hope the future is financially kinder.

One thing is for sure, the plan to slip a restructuring plan through the bankruptcy court has not worked and McClatchy and the hedge funds are looking for a quick resolution. Probably that is why the idea of a sale was so inviting. The fact that a sale would end the inquiry into the suspect transactions probably wasn’t a consideration, was it?

 

 

 

 

 

THIS TIME: Everybody has a plan until you get hit in the nose.

Two blows have struck McClatchy’s plan for a quick restructuring of the nation’s second largest newspaper chain, which includes the Modesto Bee. The unexpected cash burn caused by lawyers’ fees and other administrative expenses was just a jab. The telling blow was the even more unexpected Covid 19 pandemic which has gutted advertising revenues.

So now, the biggest creditors, Chatham Asset Management and Brigade Capital Management, are pushing for an auction to be completed by July. They propose to be a “stalking horse” by making the first offer. The exact terms of that offer have been presented to McClatchy and the official Creditors Committee but have not been made public. The basic offer is valued at $300,000,000 which is not a cash bid but a credit bid. In other words, we will forgive $300,000,000 in debt for the keys.

Questions to McClatchy yesterday, the day of the filing, were referred to McClatchy’s advisors. The questions were simple: “Am I correct that the restructured company anticipated by the term sheet would have a secured debt to Chatham and/or other hedge funds? What would be the amount of that debt?” (email).

The response: “The term sheet has not been filed publicly, but there is quite a bit more information about its proposed structure (and I would flag that it is still a non-binding proposal, not an APA)in the publicly available court documents (here), which should give you the information you are looking for. Of course, if you have any other questions, don’t hesitate to let us know.” (emphasis added) (email).

Guess I was looking for a number. Guess I didn’t get it. Maybe it is in the filings. Some things I cannot easily find. It should be easy to find. Imagine if you were looking to buy a home and the seller said I want XXXXX cash and you can assume the mortgage. How much is the mortgage? “Something” would not be an acceptable number. Nor would a reference to the 300 plus filings.

My guess is the object which fouls the punchbowl for any other potential purchaser is a secured debt of about $300,000,000… MORE.

Anybody think McClatchy is worth a $300,000,000 down payment with additional payments of more than $30,000,000 a year for the next 10 years (my guess as to the terms of the secured debt).

The original disclosure filed by McClatchy showed pre-petition debts totally a little over $700,000,000. All but about $15,000,000 was in three distinct tranches. The First Lien note was about $263,000,000. The Second Lien note was for about $157,000,000 and the Third Lien note was for about $268,000,000. (We are using “abouts” because all the debts rack up interest).

What is being proposed as the stalking horse offer is about $300,000,000, $30,000,000 of which is “new money” called “exit financing”, the balance being one of the tranches of old debt…plus what?

I, for one am flummoxed. What is McClatchy worth? According to the filing, McClatchy’s operating income for 44 recent days was about $250,000 a day. In 2019, According to the 2019 10k, the daily income was more like $1.5m per day. These may be apples v. oranges number because the filing really doesn’t define “operating income” while the 10k states “total revenue.”

What is clear is that even without debt payment, McClatchy is in trouble. With debt payment, it is way underwater.

Chatham may, at first blush, look like a good guy with its stalking horse offer, not like the wolf I called them in an article last September, even before someone got a bad bat at the wet market in Wuhan.

Why did Chatham and its hedge fund allies decide to make this offer. Well, although they and McClatchy management went hand in glove to the bankruptcy court, there has been some slippage. Objections have been made to the priority sought by the second and third tranches.

The objectors claim the second and third tranches jumped from unsecured to secured creditors in June of 2018 when McClatchy was already insolvent, according to some metrics. This might be a fraudulent transfer which the court could rule makes the second and third tranches unsecured and dischargeable.

The stalking horse offer has some of the hedge fund debt paid off through the credit bid with the rest secured by the assets of Restructured McClatchy. Problem solved

Two things may have also played a role in prompting the bid:

First, the creditors committee got authority to examine a ploy by McClatchy and Chatham in the credit default swap market. They wanted to create a brand, new entity which would have taken over all of McClatchy’s debt. That way, if (when) the original companies failed to make payments when due, there would be no default and the credit swap contracts would be “orphaned”, made worthless. Cries of “market manipulation” iced that scheme.

Second, a couple of months later the unsecured to secured transaction was made and, perhaps, the credit default swap move would be evidence that the unsecured-secured change wasn’t made with the cleanest of hands.

Finally, McClatchy recently proposed that during the bankruptcy proceeding, which was going on, and would likely go on, much longer than originally anticipated, the lawyers be paid less (shudder) and the first lien holder be paid less during the pendency of the bankruptcy as well (SHUDDER).

The stalking horse offer is included in Chatham’s objections to McClatchy’s request. If they are the only bidders, Chatham et al can turn to the court and say “see”.

Still haven’t heard the words “cram down” have you? Remember, a cram down can be utilized when a secured creditor is “over-secured”. That is when the amount of the debt is more than the collateral. In that case, the court creates a secured debt no greater than the amount of the collateral, with interest at as reasonable rate, payable over a reasonable period of time, The balance of the original debt is an unsecured debt and can be discharged.

Chatham, understandably, wants all its investment back. It is, after all, not its money. Some of those folks who entrusted their money to Chatham’s manager, Mr. Melchoire, can shout pretty loudly.

The biggest problem for the observer is that the term sheet is not public and although referred to in the recent pleadings is not an exhibit. Some reference is made to future First Lien notes but there is a number.

Back to the house sale analogy, the full listing price is not stated., is not disclosed. Would that scare off a bidder?

 

 

 

 

THIS TIME: McClatchy management had a bad hand. Should they have decided to fold…

Or, he said, emphasizing the word OR,  should McClatchy management have grown a pair; put on the Risky Business sunglasses, said WTF and told its creditors to pound sand.

It couldn’t have resulted in anything worse than losing control of the 160 plus year business and having the heirs of the founder and hand it over to a batch of funds, the major one of which is called a “high yield” fund, managed by a good friend of The Donald.

Anthony Melchiorre, Chatham Asset fund manager, and complicit McClatchy managers said they are interested in continuing support for local journalism.We call bullshit to Chatham’s resolve to do anything more than continue to bleed the nation’s second largest newspaper chain to get all the “yield” they can. Vampire analogies abound.

For those who control McClatchy now, these expressions are salve to the wounds they must feel as they watch family control disappear. Certainly, they hope, realistically or not, that its award winning journalism will continue.

But, he said, emphasizing the word BUT, what if McClatchy took a different approach to reorganization through the Bankruptcy Act and tried to wipe out some, maybe even most of the Chatham debt.

(Note: There are other secured debtors, but Chatham holds more than 90% of the debt so for purposes of this rant it is easier to name only one bad guy. They will all be treated the same by the bankruptcy court.)

Before we offer an alternative approach, let’s background the existing situation, with numbers rounded to make things easier:

McClatchy began this week with more than $730,000,000 in secured debt, basically in three different debt instruments with different maturity dates all owed to Chatham. When McClatchy didn’t make the interest payments due, all three debts became instantly due and payable, including both principal and accrued interest.

In addition, McClatchy had a qualified pension plan which covered about 24,000 employees (2,400 current) and was in arrears by about $800,000,000. This plan was insured by the Pension Benefit Guarantee Corporation (PBGC). McClatchy failed to make a payment which would have been part of $120,000,000 contribution due this year.

So, the parties competing for their slice of the pie were Chatham and PBGC. It appears McClatchy agreed to satisfy Chatham by giving up 97% of the equity in the company and reducing the debt load to $217,000,000, with interest at 10%, higher than the rate of any of its current debt.

The PBGC has balked at the proposal, and it is just that, a proposal, which would see the PBGC getting about $10,000,000 over about a seven-year period.

In its filing, which stops any enforcement action by any creditor, McClatchy has asked the court to appoint a mediator to conduct settlement discussions.

While I was a lawyer, after being a reporter, I was not a bankruptcy lawyer and have no real expertise in this field of law. But who needs to be an expert, these days, to suggest an alternative course of action? Not me!

So, what if, he said emphasizing the word IF, McClatchy utilized a section of the bankruptcy which could allow it to discharge a big hunk of the Chatham debt?

Bankruptcy courts have recognized that in virtually every corporate bankruptcy there is going to be a failing business and a creditor who wants all its money back. If every secured creditor was to be made whole there would never be the second chance which is the premise of the Bankruptcy Code.

Therefore, the courts have developed a system for dealing with a “over-secured” creditors like Chatham. The court allows as a secured claim an amount equal to the collateral then existing. The balance then becomes an unsecured claim and can be discharged.

And, again emphasizing the word AND, the amount of the reduced secured claim is converted into a loan with a fixed maturity date, interest at what is usually a lower rate than imposed on the original debt, and fixed periodic payments.

This is called a “cram down” because it is literally crammed down the gullet of the creditor who must wait to get a reduced amount, with reduced interest, at a later date.

Every aspect of this type of reorganization can be litigated, from the value of the collateral to the interest rate of the loan to the due date of final payment. Creditors whose investment is crammed down sometimes get pissed off. More on what that might mean later.

Let’s suppose in our setting that McClatchy claimed it was worth far less than the Chatham debt. It could argue it hasn’t had a profitable quarter since forever, dividend payments likewise, its real estate holdings have been sold and its biggest assets, on paper, are intangibles like goodwill.

Right now, McClatchy faces interest payments on the Chatham debts of about $50,000,000 a year with maturity dates not that far in the future.

It would go against the grain, and fly in the face of  past public pronouncements for McClatchy to say it wasn’t worth nearly as much as it said it was in the past. But swallowing past puffery may be required.

Is McClatchy worth a half of the $730,000,000 owed, or maybe a third? Would reducing the debt load give it the breathing space it needs to make the transition to digital?

Reducing the debt load would also free up some money to make peace with the PBGC which right now is looking at the proposal and saying Chatham is getting far more than is fair, since PBGC would be taking over the distressed pension plan without any future contributions from McClatchy.

It would be a tough call to make for management to try this suggested approach. Current management can likely feel assured of continued employment, or a valuable parachute if Chatham doesn’t feel too stung.

After all, Chatham is still going to have to answer to its “high yield” seeking investors. Why do they now own a money losing newspaper chain? What happened to the millions of dollars that was used to buy 23% of the common stock which is now worthless, as is all McClatchy stock under the current proposal?

The risk, primarily to current management who might want to be retained, is that if the value of the collateral is determined to be too high, thus not shedding enough debt to keep the company under family control, the creditors put through the litigation wringer are not going to be happy.

Maybe everyone is happy. Maybe the family is tired of the hassle, of the quarterly bad news, and wants to move on. Well, that might be accomplished with the current bankruptcy proposal. On the other hand there are those who think the McClatchy standards may not be retained by the hedge funders.

Remember, dear reader, that I am not an insider; have no special knowledge about the negotiations, including whether my idea was ever considered.

But it would be nice to know that it was considered and rejected for good reasons, wouldn’t it?

Talk among yourselves.

THIS TIME: DETAILS OF THE HINOSTROZA CRASH ARE STILL BEING WITHHELD

It’s been almost 11 months since Stanislaus Sheriff’s Deputy Tony Hinostroza was killed when his patrol car wrapped itself around a  pole at Terminal and Claribel southwest of Riverbank and the CHP still refuses to release any details about the crash.

In the meantime, a roadway feature which may have played a major role in causing the crash as has again fallen into the same state of disrepair it was in when the deputy crashed.

On November 25, 2018, Deputy Hinostroza headed east on Claribel to join in with other deputies who were actively in pursuit of a vehicle attempting to evade them.

As he neared the intersection with Claribel he encountered a raised lane barrier built to contain traffic in the eastbound lane when the intersection was controlled by four-way stop signs. It was painted the same color as the center line. It was after dark and the deputy may not have been able to see that the barrier was there.

When built, the barrier had a series of yellow tubes vertically atop the barrier. Over time, these tubes had been knocked off.

Photo one is of the barrier on Claribel taken a couple of days after the crash.

Photo two is of the barrier taken a few days after photo one and AFTER it was fixed by the Stanislaus County public works folks. Note: Pictures taken after the fix were published by the Bee without saying the photo was of the repaired barrier.

Photo three is of the barrier taken this week. The small reflective  signs which serve to show the existence of the barrier, evident in photo number two, are gone. The sides of the barrier are again blackened, apparently from tires rubbing against them.

Photo number four is of the next roadway crossing of the railroad tracks to the north, within the City of Riverbank. Note the vertical posts AND the configuration of the barrier.

Witnesses said that the patrol car hit the barrier and lost control, sliding sideways before turning then rolling with the impact centered on the left A pillar, right above the deputy. He died instantly.

With the silence from the CHP despite formal repeated requests under the California Public Records Act, beginning last March, we must rely on what I call “observational journalism.” This simply means that the reporter reports on what they saw.

Two days after the crash, there were markings on the roadway put down by CHP investigators. These markings put down by the CHP marked the path of the deputy’s car. These included scrapes on the barrier and on the roadway.

To my eye, the marks put down by the patrol car, including gouges which look like they are from the rim of a deflated tire—rim marks—indicate that the patrol car straddled, at least for a time, that barrier.

The gouges are off and on which could indicate the brakes had been applied as ABS pulses the brakes off and on and could explain why several gouges were made instead of one long gouge.

Whether or not the brakes had been applied and for how long should have been known within days of this crash. The patrol car was equipped with an event data recorder, a “black box”. In addition, the data logged would include throttle position, speed, turning moments and other happenings in the five or so seconds before the impact. That data would be independent of any investigative product of the CHP. In our request for the records we asked specifically for the black box data. That request was refused.

The configuration of the barrier, apart from maintaining the original design, represented a danger. Look back at the barrier built and maintained by Riverbank at the Patterson Road crossing, (photo number four).

If you straddle the barrier on Claribel you have no chance to get back into the proper lane, the barrier is simply too tall and its sides are near vertical. The Patterson Road barrier is lower and more rounded, making recovery possible.

Given the fact that markings or signs atop the barrier apparently cannot be maintained, the question becomes why not remove the barrier? The intersection is now controlled by signals with cross arms synchronized so that the Claribel traffic has a red light when a train passes.

The other question is why is the CHP withholding information about this crash. CHP headquarters, specifically the Office of Risk Management takes the position that the report cannot be released until it is “complete”. The legislative language is clear that a request may be made before the report is complete and refused only when disclosure would interfere with “the successful completion of the investigation…”

The CHP at both divisional and headquarters has not specified what investigation is underway and why disclosure of even some of the details would interfere with its completion.

It may be politically hard for the CHP to “point fingers” with its report. For example, it could be thought to be critical of Deputy Hinostroza for the speed at which he was traveling. Or it could be thought to be critical of the Sheriff’s Office for the discretion it affords its deputies in determining when to pursue and at what speeds.

A study of pursuits covering a three-year period showed a substantial number of chases topped 80 miles per hour and about 10 percent hit 100 mph or higher.

Then, there is the relationship problem which might arise if the CHP was thought to be critical of the configuration of the barrier, and/or the failure to maintain those yellow posts which highlighted the existence of the barrier, especially at night.

While this incident occurred when a deputy was driving, presumably, at a higher than normal speed, this question remains: If use of reflector paddles is justified, why aren’t they maintained?

We are persisting in attempts to get the report and all information about the crash that took the life of a valued public servant.

 

THIS TIME: WALL STREETIN’ McCLATCHY.

Do the 19 or so descendants of the founders of The McClatchy Company—whose media empire includes The Modesto Bee—feel the hot breath of a hedge fund wolf on the backs of their necks? Perhaps they should.

In addition to an existential threat at the boardroom level of the McClatchy Company at 21^st and Q Streets in Sacramento, there are apparently major, recognized problems just getting the print edition to the dwindling subscribers. See Babette Wagner’s piece in The Valley Citizen of September 15, including the Comments.

Our piece raises the question if, or maybe when, McClatchy’s financial position would trigger a default provision in one of their debt instruments causing debt-for-equity swaps, which would turn the hedge fund into the owner of McClatchy.

The hedge fund player is Anthony Melchoirre, a good friend of President Trump. He manages individual funds under the umbrella Chatham Asset Management of Chatham New Jersey.

Chatham currently owns more than 20 percent of the publicly traded Class A common stock as well as about $700,000,000 in debt instruments.

Chatham has been in this kind of situation before. Twice. Both times it has ended up with majority interest in the companies. Both previous times, it involved media companies, although of a different stripe.

First, Chatham did a debt-for-equity swap to obtain more than a 60 percent interest in Postmedia Inc. the largest newspaper chain in the Great White North. Financial troubles provided the opportunity for Chatham to own this Canadian company.

Second, Chatham managed to convert a minority stock interest and debt in American Media Inc. a celebrity and lifestyle magazine publisher, into an 80 percent ownership of a parent limited liability company into which AMI was merged. Again, financial problems prompted the move. Until recently, AMI owned the National Enquirer.

McClatchy has not yet experienced the kind of financial difficulty experienced by Postmedia or AMI. Yet. But there are two red flags waiving (figuratively) over McClatchy headquarters.

Pension Plan Waiver: McClatchy’s defined benefit plan, frozen in about 2009 and replaced with a 401k plan for most employees, has been underfunded for years. At last count the underfunding was somewhere north of $500,000,000. (There isn’t a missing decimal point…it’s half a billion dollars!)

Substantial contributions are due in the next year or so which McClatchy does not have in the bank, and for which earnings of that amount, net, are not foreseeable. So, they have asked the IRS for a waiver, not of the amount, but for payments to be  spread out over time. The amount due is to be spread is said to be $120,000,000.

Making this request, in and of itself, is not a triggering event—one which would make the debt due now—but, in a SEC filing, McClatchy said if the waiver was not granted there would be “liquidity” problems. That’s like when your bar tab hits 20 and you only have a ten.

The term “liquidity problem” as it relates to McClatchy has been used by others. The Wall Street tout, TheStreet, reviewing McClatchy’s second quarter 2019 performance says the company has “very weak liquidity.” Using its own methodology, TheStreet says it “clearly shows a lack of ability to cover short term cash needs.”

There are three Chatham held debt instruments with different due dates and different interest rates. They are linked in default clauses so a default on one instrument triggers a required payoff on all three.

McClatchy owns 30 newspapers, including the Sacramento, Modesto and Fresno Bees. It also owns east coast papers in North Carolina and Florida. It does not publicly break down the earnings or costs by individual paper.

The company has been burdened by debt for many years and has   used most of its earnings to pay on the debt, along with the sale of buildings housing its newspapers. It really has nothing else to sell to raise money should the debt be called.

When the company sold the Kansas City Star’s glass edifice, one local wag said: “they are turning the furniture into firewood.”

The Delisting Threat: Even if the IRS grants the waiver, present conditions represent another red flag. Last week the New York Stock Exchange (American) gave McClatchy notice it might be “de-listed” absent a plan convincing the exchange it can reverse the slide reflected in four consecutive years of net losses and a negative shareholder equity of $372,500,000.

Until McClatchy comes back into compliance, the ticker symbol MNI will include “.BC” code for failure to meet the exchange’s standards. The plan is due within a month and may or may not be accepted by the exchange. Additionally, if accepted, the exchange will monitor compliance with the plan and could delist if progress is not made in accord with the plan.

We don’t know if delisting would be a default trigger or could prompt some sort of reorganization, either through bankruptcy or a voluntary arrangement as happened with Postmedia and AMI.

Chatham’s investments are called “thematic” as they have focused on media, magazine, newspaper and digital publications like the trio we have been discussing.

A little different but within the theme is RR Donnelly, a marketing and printing company. Chatham had accumulated a10% interest by mid-August, according to SEC filings. We don’t know if Chatham holds a Donnelly debt.

So, what’s the worry? Well, here’s the potential problem: The McClatchy “family” losing effective control!

Years ago, McClatchy went public and sold shares in the company. There were two classes of shares. Class A shares are publicly traded. Class B are not. Class B was divided, for the most part, among heirs or descendants of those who founded the chain. While there were roughly the same number of Class A and B shares, there was a 10-1 vote disparity in favor of Class B. So, for example, if there were 500 shares of each, Class A would have 500 votes and Class B would have 5,000.

So, all things being equal the “family” would control the company. But what happens if more than $700,000,000 debt is now due? At today’s share prices, about $2.50, a debt for Class A equity swap isn’t going to put a dent in the debt.

So, to stay afloat, Class B shareholders may be required to pony up some or all of their stock, with a loss of control to naturally follow. Will the excellent journalism McClatchy now does continue without family control?

 

Bankruptcy might seem to be a solution but all of the Chatham debt is secured and all of the McClatchy subsidiary companies have signed on as guarantors of the debt.

Secured debt generally can’t be discharged in bankruptcy. And, there are few, if any, solid assets. Much of the balance sheet for McClatchy lists “goodwill” and “masthead value” as the primary assets. Masthead value is the newspaper’s name, subscriber and advertising list, and the website. The real property has, for the most part been sold or, in the past assigned to the pension plan in lieu of a cash contribution.

If, if, if Chatham took control it would only be rank speculation to talk about what philosophical changes might obtain. So, let’s do that.

When AMI owned the National Enquirer, it was run by David Pecker. He stands accused of arranging to pay two women to bury stories about alleged dalliances with then candidate Donald J. Trump. One was a former Playboy Playmate, the other a porn star. Pecker has been involved with management of both AMI and Postmedia.

Mr. Melchiorre pushed AMI to dump The Enquirer only after a threat to reveal sexts and below the waist selfies of Jeff Bezos. The Enquirer may have picked a fight with the wrong man. Bezos has sued and, being the richest man in the universe he can bring the fight.

You have to wonder if the hedge fund would look beyond the bottom line. Again, any anticipated change in the philosophy of McClatchy is rank speculation.

Other changes are afoot, however.

The change in publication days for the Modesto Bee is not a red flag but simply the continuing effort to lose “legacy expenses”. The Bee will stop printing a Saturday paper but will not reduce the subscription price. The Bee promises to produce more robust Friday and Sunday editions, mentioning comics and crosswords. There has been no talk of adding reporters. Or, of a change in the focus for those still on staff.

Another headwind is the possibility that carriers will become employees under AB5 (the gig worker bill) signed by Governor Newsom recently. Right now, carriers are not exempt but enforcement for them has been delayed for one year. Newspaper publishers have called this threat existential.

Here’s a thought: One small chain of papers has made an agreement to have its papers delivered by someone who comes to your home every day—the postal carrier 4. The Ironton (Ohio) Tribune says its papers are on newsstands by 8 am every publication day (Tuesday through Saturday) and delivered to your home or office with that day’s mail.

Hmmmmmm.

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