PALCO abandons reorganization plan to back MRC
By Nathan Rushton
The Eureka Reporter
May 1, 2008
Pacific Lumber Co. announced in federal court Thursday that it withdrew its reorganization plan as part of a deal with Mendocino Redwood Co. to support its bid for the bankrupt company.
The backing of the MRC plan by PALCO and parent-company MAXXAM, Inc. resulted in a shake-up of at least one senior management position at Scotia Pacific Co.
PALCO attorney Shelby Jordan said the timber company would forego calling its witnesses this week as part of the deal to support the MRC plan.
MRC and PALCO creditor Marathon Structured Finance Fund’s reorganization plan seeks to purchase SCOPAC’s timberlands and continue the timber and milling operations.
MRC filed its amended reorganization plan in court Thursday.
Under the new plan, MRC would increase the amount of cash to be paid to SCOPAC’s largest creditor — the Timber Noteholders — from $175 to $530 million.
That amount is still below a $603 million bid from Beal Bank, which the Noteholders have touted as a serious offer and closer to what they believe is a fairer value of the timberlands, which they hold as collateral for the more than $700 million they loaned to SCOPAC.
MRC attorney Allan Brilliant said the groups worked hard in the past days to resolve issues to reach an agreement with PALCO and MAXXAM.
MAXXAM will also be paid $2.5 million under the arrangement, as well as be given “exculpation” protections to PALCO and MAXXAM executives who won’t be “liable, other than for gross negligence or willful misconduct in the management or operation of the debtors or the discharge of their duties under the Bankruptcy Code,” according to the plan.
And whether or not the MRC/Marathon plan is confirmed, Brilliant said MRC agreed to purchase MAXXAM’s logs.
“If our plan is confirmed, we will pay them more,” Brilliant said.
PALCO’s surprise reversal left SCOPAC, which isn’t supporting the MRC/Marathon plan, to continue making its case for its plan based on an approximately $1 billion value of its timberlands.
SCOPAC attorney Kathryn Coleman told the court the case has always been about the value of those lands.
“PALCO’s withdrawal may change some things, but it doesn’t change the value,” Coleman said.
Testifying in court Thursday was SCOPAC Vice President Jeffrey Barrett and PALCO executive Gary Clark, who announced that he resigned from his dual position as chief financial officer at SCOPAC Thursday morning.
Calls to PALCO to determine if more executive officers were affected by the deal were not returned by deadline.
Clark’s resignation leaves a hole in SCOPAC corporate structure, although Clark said PALCO is obligated under an agreement to continue provide administrative services to SCOPAC.
Clark testified in court as to PALCO’s ongoing financial woes and raised a concern that the Scotia Mill would likely shut down from a lack of income and the payment of professional fees.
“I believe strongly that we wouldn’t have the cash to operate,” Clark said.
Lawyers for the Timber Noteholders, who aren’t a party to the new deal struck between MRC and PALCO, indicated in court they still want to see the timberlands offered at auction to get the best price under their plan.
Noteholders attorney William Greendyke notified the court that Arcata-based Sierra Pacific Industries was also a “very serious mill partner.”
Greendyke mentioned that representatives from the Nature Conservancy and the Harvard Endowment Fund were also in the court room, which have each signaled an interest in bidding on SCOPAC’s 210,000 acres of timber lands.
Greendyke posed a question to Judge Richard Schmidt on behalf of his clients to clarify what the judge meant by his previous comments about whether the Noteholders were willing to “step into” the role of the MRC/Marathon plan.
Schmidt told Greendyke that he wasn’t suggesting anything, but was rather commenting on the possibility that other options were out there and the bankruptcy system was set up for parties to make deals.
“If you don’t make agreements, I make decisions,” Schmidt said.
Schmidt reiterated his previous comments that there is considerable interest and support for preserving both the timberlands and the mill in operation.
“A plan that just deals with the forest probably liquidates the mill,” Schmidt said.
Schmidt said he wouldn’t rule on the case this week and agreed to hear closing arguments on May 15 and 16 after a two-week break.
“It seems the closer we get to then end, the better the deals get,” Schmidt said.
Witnesses are expected to wrap up today in the hearings scheduled to begin at 9 a.m. in Corpus Christi, Texas.Posted in PALCO | Tagged HRC, MRC |