Sierra Pacific makes offer for Palco mill
By John Driscoll
May 12, 2008
Timber magnate Red Emerson’s Sierra Pacific Industries has offered to buy the Pacific Lumber Co.’s sawmill and power plant and is pledging to pour more than $70 million into improvements there.
Documents filed in U.S. Bankruptcy Court in Corpus Christi, Texas, Monday say that Sierra Pacific has made a $45 million offer — including working capital — which does not include the town of Scotia. The documents say that the completely overhauled mill it envisions would replace Sierra Pacific’s Arcata operation, moving those milling activities to Scotia.
Once retrofitted, the mill would employ some 300 workers, the papers read. Sierra Pacific would create two mills, one for small logs and the other for large logs, build new dry kilns, make improvements at the power plant, and improve the existing storm water runoff system.
“After completion, the remodeled Scotia mill and the new SPI facility will employ approximately 300 people and will bring much-needed financial stability to Scotia, CA, and the surrounding community,” the notice reads.
The offer would affect only the Palco element of the bankruptcy, and not Scotia Pacific’s 210,000 acres of timberland, although it would work in concert with a plan by timber noteholders. Sierra Pacific is one of the nation’s largest private landowners, owning 2 million acres in California and Washington. It is the second largest lumber producer in the United States with 15 mills. It also owns eight power plants.
The bond holders who are owed $714 million secured by Scotia Pacific’s timberlands have presented a plan to the bankruptcy court to auction off the property. But the court has expressed concern that the plan deals only with the timber, and not with the mill or town.
Mendocino Redwood Co. and Palco creditor Marathon Structured Finance Fund have pitched a plan to reorganize both the timber and sawmilling operations of Palco. That plan has won the support of nearly all unsecured creditors. Palco, and its parent company Maxxam Inc., is no longer opposed to the plan.
Under the terms being proposed by Sierra Pacific, a purchase would be contingent on a 15-year log supply agreement with the new owner of the timberlands. How that would be secured is unclear; a representative of the largest noteholder, Beal Bank, testified that under its offer the new owner would only be willing to sell 50 to 70 percent of the logs to the mill, and would adjust prices based on the market.
The term sheet also makes no specific mention of how the unsecured creditors of Palco would fare in the Sierra Pacific deal. The noteholders’ plan doesn’t compensate Palco’s creditors.
“We still think our plan offers the best recovery for creditors and takes into account the long-term interests of all the stakeholders in Humboldt County,” said Mendocino Redwood Chairman Sandy Dean.
The Bank of New York, representing the noteholders, submitted a proposed emergency motion on Monday to reopen the evidentiary element of the bankruptcy proceedings closed last week. That would allow them to put up evidence relating to Sierra Pacific’s offer and present evidence that Lehman Brothers Inc. has made an offer to provide $10 million to keep Scotia Pacific afloat during an auction, its attorneys wrote.Posted in PALCO | Tagged HRC, MRC |