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Sierra Pacific Offers to Invest $75M In Pacific Lumber’s Mill – Company Would Buy, Renovate Mill

By David McLaughlin
Daily Bankruptcy Review
May 14, 2008

Sierra Pacific Industries wants to buy Pacific Lumber Co.’s sawmill for $45 million if a judge approves an auction for 200,000 acres of California timberlands as part of Pacific Lumber’s bankruptcy case.

Sierra Pacific, the second-largest lumber producer in the country, is ready to invest more than $75 million to buy and renovate the mill, according to court papers filed Monday.

The offer comes as the U.S. Bankruptcy Court in Corpus Christi, Texas, is considering approving a plan to take Pacific Lumber and subsidiary Scotia Pacific out of bankruptcy protection. “We think it’s a serious proposal that the court will consider,” Sierra Pacific spokesman Mark Pawlicki said Tuesday.

Sierra Pacific’s involvement in the case became public earlier this month when Harvard University’s endowment told the bankruptcy court it wanted to bid for the timberlands and would partner with Sierra Pacific. Pawlicki said Harvard is no longer interested in the land. A Harvard spokesman could not be reached for comment Tuesday. The school has repeatedly declined to discuss its proposal.

Judge Richard Schmidt is set to hear closing arguments on Thursday from creditors who are battling to win approval for their bankruptcy plans. Bondholders of Scotia Pacific are asking Schmidt to approve an auction for Scotia Pacific’s timberlands in Humboldt Country, Calif., totaling more than 200,000 acres. They say a sale is the best way to ensure the highest value for the land.

But hedge fund Marathon Asset Management has proposed a plan in which it will team up with California lumber company Mendocino Redwood Co. LLC to take control of the mill and the timberlands. That plan has the support of California and federal regulators and Pacific Lumber, which has withdrawn its own scheme to reorganize. The Bank of New York Mellon Corp., which represents the bondholders, said in court papers filed Monday that if the court approves an auction, Sierra Pacific would buy the Pacific Lumber mill. The Redding, Calif., company owns and manages 2 million acres of forests in California and Washington and owns 15 sawmills – 12 in California and three in Washington. Sierra Pacific, a privately held company, is not interested in the timberlands, Pawlicki said, but would seek to reach a log-purchase agreement with the winning bidder if an auction is approved.

“It needs a lot of work,” Pawlicki said about the Pacific Lumber mill, “and we’d made those investments to make it a better mill.”

Schmidt is no longer accepting evidence in the hearing to approve a bankruptcy plan, but The Bank of New York is asking for permission to include Sierra Pacific’s offer as evidence for Schmidt to consider. It also wants to include an agreement from Lehman Brothers Holdings Inc. to loan $10 million to finance Scotia Pacific’s operations if the auction is approved.

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