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Rescue plans roll in for Pacific Lumber – Four submissions range from total sell-off to sustainable logging

By Mike Geniella
The Press Democrat
February 1, 2008

UKIAH — Four competing proposals were outlined Thursday to rescue venerable Pacific Lumber Co. from bankruptcy, ranging from liquidation of its North Coast assets to a cash infusion of $225 million under new ownership.

Details were gleaned from hundreds of pages of documents submitted by creditors, company officials, environmental groups and investors who scrambled to meet a midnight Wednesday deadline set by a federal bankruptcy court in Texas. Hearings are to begin April 1 on the merits of each proposal.

“Between now and then, I’m sure they will come under intense scrutiny by all parties involved,” said Sandy Dean, the San Francisco-based chairman of Mendocino Redwoods Co., which submitted the most financially detailed plan for a Pacific Lumber takeover.

The high-profile case has attracted widespread attention. A last-minute letter to the court from Gov. Arnold Schwarzenegger said the outcome of the Pacific Lumber saga is of critical importance to California taxpayers.

Schwarzenegger cited a controversial $500 million state and federal deal with Pacific Lumber in 1996 to purchase 7,200 acres surrounding Headwaters Forest, then the largest tract of ancient redwood groves left in private ownership. The agreement called for sustainable timber harvesting over the remainder of Pacific Lumber’s 210,000 acres of southern Humboldt County timberlands.

“The United States and the people of California have a strong interest in a successful reorganization of a Pacific Lumber Co. that will result in sound management practices for the future of these lands,” wrote Schwarzenegger.

At stake is the fate of a historic North Coast timber company that’s been beset by financial and environmental woes since a 1986 takeover by Texas financier Charles Hurwitz and his Maxxam Inc. Pacific Lumber sought bankruptcy protection a year ago because it was unable to meet millions of dollars in interest payments on its debt.

The plans differ in significant ways, from how Pacific Lumber and its subsidiaries would be reorganized to ownership of the timberlands and the historic mill town of Scotia.

Current Pacific Lumber management seeks to restructure the company’s debt, while maintaining Maxxam’s shareholder and management status. It also envisions Marathon Structured Finance Fund, Pacific Lumber’s largest secured creditor, taking over the town of Scotia and its mill complex in return for the debt, and also other company assets in Arcata, Fortuna and Carlotta.

But Marathon has teamed with Mendocino Redwoods Co., a Ukiah-based firm with 225,000 acres of timberland in Mendocino County, to form a joint venture to own and operate Pacific Lumber. As part of the deal, Mendocino Redwoods said it would put up $225 million in cash and operate the timberlands and Scotia sawmill as one unit.

The Mendocino Redwoods/Marathon proposal is the most financially detailed of the plans, backing up investors’ contentions they are ready to move quickly with court approval.

A rival plan, offered by a group of investment firms holding Pacific Lumber’s timberlands as security for more than $700 million in debt, wants to auction off the land and other assets to satisfy creditors.

The Bank of New York Trust Co., which leads the group, said qualified buyers have indicated they might be willing to pay between $550 million and $600 million cash for the land. “Such indications of interest will likely act as a starting point for solicitation of bids in the auction process,” said a company statement.

An unusual alliance of environmental groups, nonprofit forest advocates and the Bank of America and Atlas Holdings is also making a bid to take over Pacific Lumber, though its proposal lacks financial specifics.

Reacting to a possible auction of assets, the alliance wrote to the Bank of New York earlier this week expressing interest in purchasing the timberlands, mill and other company assets.

“Our goal is to recover the job base by recovering the resource base,” said David Simpson of the Community Forest Team, one of the North Coast organizations linked to a proposed Bank of America/Atlas Holdings financed acquisition.

North Coast political and community leaders have largely taken a wait-and-see attitude.

“Now comes the scrutiny, and only then will we know what may be best for our communities,” said Jill Geist, chairwoman of the Humboldt County Board of Supervisors.

You can reach Staff Writer Mike Geniella at 462-6470 or mgeniella@pressdemocrat.com.

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