Ruling on stay in PALCO case likely Tuesday
By Nathan Rushton
The Eureka Reporter
July 12, 2008
Whether Mendocino Redwood Co. can move forward with its court-approved plan to take over and revamp the bankrupt Pacific Lumber Co. is expected to be decided next week.
The judge in the PALCO bankruptcy proceeding wrapped up hearings Friday afternoon to hear arguments for why he should grant a stay to prevent the reorganization plan he approved last week from proceeding while a key creditor group appeals that decision.
With the potential that MRC and co-plan proponent Marathon Structured Finance could back out of the deal if he approves the stay, Judge Richard Schmidt must decide whether to give Scotia Pacific’s largest creditor — the Timber Noteholders — adequate time to have their approximately 20 issues heard by the 5th Circuit Court of Appeals.
While the Noteholders say that could be done in six months, Schmidt heard arguments from other attorneys who said it was more likely to be two years, which could cause a domino effect that might kill the MRC plan and close down the mill and cripple Scotia.
“If you lose (the appeal), how do we make sure the debtor is not in a worse condition?” Schmidt asked.
Rather than forcing the Noteholders to front a bond that MRC and Marathon attorneys told the court should be at least $100 million and as much as $404 million to protect their interests, the Noteholders’ attorneys asked the judge to allow them to be at risk to absorb a one-year $25 million loan from a third-party lender to SCOPAC to keep it afloat while the appeal is heard.
In addition, the Noteholders said they would arrange to have SCOPAC deliver to PALCO 5 million board feet of logs per month for the rest of the year to maintain Scotia’s sawmill’s requirements to satisfy customers, which SCOPAC executives testified would work to keep the company alive at a bare-minimum level.
Attorneys for the Noteholders accused MRC and Marathon of attempting to pile on the amount of the bond without any justification, as well as failing to provide any evidence that they might walk away from the deal.
Marathon attorney David Neier wasn’t warm to the Noteholders’ plan to keep the timber company operations going the way it has, which could result in MRC and Marathon receiving a vastly different company than exists today.
“The status quo is not good,” Neier said. “PALCO has been living on fumes for the past six months in the case.”
Neier said the Noteholders have provided nothing on paper for anyone to be able to review and offered no commitment in their “half-baked” concept to give away logs that was put together at the last minute.
“This is a joke,” Neier said.
As to whether Marathon would back out of the deal, Neier said that was a realistic option.
“I can guarantee that Marathon is going to act in its economic best interest,” Neier said.
Schmidt asked the Noteholders and MRC/Marathon to submit to the court their formal plan and justification for a bond amount by Monday for an anticipated decision on that or the following day.
“You don’t have a judge that is unwilling to be creative,” Schmidt told the attorneys.
Schmidt said he just wants to see everything in writing.Posted in PALCO | Tagged HRC, MRC |