Deal struck by Palco, Mendocino Redwood
By John Driscoll
May 2, 2008
The Pacific Lumber Co. and its parent company, Maxxam Inc., have struck a deal with the Mendocino Redwood Co. and a key creditor, and raised the ante with an all-cash offer for the Scotia company’s timberlands.
The deal was announced in U.S. Bankruptcy Court in Corpus Christi, Texas, on Thursday. Palco and Maxxam will now support the Mendocino Redwood and Marathon Structured Finance Fund plan of reorganization, which calls for the timberlands and the Scotia mill to be operated as a single entity.
“We have put our entire support behind the MRC and Marathon plan,” said Palco attorney Shelby Jordan.
Jordan said that Palco’s position is to support the plan that best preserves the town of Scotia, the Palco mill and its employees, and one that keeps the timberlands tied to the mill.
As part of the deal, Maxxam apparently would get $2.25 million in exchange for tax protection measures, and Mendocino Redwood would buy logs Maxxam has purchased in recent months, said an attorney for Marathon.
The Palco-Mendocino pact now offers $530 million in cash to the noteholders, up from a package of $175 million in cash and $325 million in notes.
“We believe we have enhanced the valuation to the full extent we can,” said Mendocino Redwood attorney Allan Brilliant.
The arrangement moves significant support to the plan proposed by Marathon and Mendocino Redwood, which already enjoys broad support from unsecured creditors and state and federal agencies.
Palco subsidiary Scotia Pacific has held out, and is presenting witnesses to back its own plan, which banks on a value of $900 million for the land.
Judge Richard Schmidt will have to decide whether to confirm the Mendocino plan, another pitched by Scotia Pacific, or another backed by bondholders, whose $714 million is secured by Scotia Pacific’s 210,000 acres.
The timber noteholders are not party to the Palco-Mendocino pact. Its attorneys suggested the court allow a representative from Harvard Management Company, Harvard University’s endowment fund, to outline a bid it may make for the land and the mill if an auction goes forward. Noteholders’ attorney Bill Greendyke said that the bond holders still want an auction of the timberlands to recoup the most money possible.
Harvard attorney Steven Hoort said he would be prepared to outline the proposal that would essentially be the same as Mendocino Redwood’s, but at a higher price. It has a qualified mill operator on board, he said, Red Emerson’s Sierra Pacific Industries, one of the largest private landowners in the country. The potential bid to buy the timberlands is added to another recent bid by a subsidiary of Beal Bank owned by investor Andy Beal.
Later in the day, Harvard’s endowment fund reportedly backed away for the time being, although their interest remained strong, according to lawyers for the noteholders.
Testimony was taken from forestry experts Thursday, and from Gary Clark, a Palco vice president who resigned as an officer of Scotia Pacific Wednesday.
Clark testified that Palco should have enough cash to continue operating through May 20. Waiting possibly months to allow the noteholders to hold an auction — should their plan be confirmed — would likely find Palco out of cash, he said.
“My understanding is the mill would probably shut down,” Clark said.
He also testified to an expected $8 million to $10 million in road work and environmental work coming due for Scotia Pacific, and questioned whether that entity could count on selling significant numbers of redwood logs if the mill were closed.
While the parties continue to brawl over their positions, Schmidt seemed to feel that progress had been made. Schmidt suggested that the recent batch of hearings would end today, and a final hearing would be held on May 16, after which he would rule.
“It seem like the closer we get to the end, the better the deals get,” Schmidt said.Posted in PALCO | Tagged HRC, MRC |