Tom Abate, Chronicle Staff Writer
San Francisco Chronicle
December 22, 2007

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Pacific Lumber Co. says it can be a good steward for its 200,000 acres of forests, technically owned by Scotia Pacific. Both are controlled by Maxxam Corp. Chronicle photo, 2004, by Kat Wade

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Doris and Don Fisher head the family that owns Mendocino Redwood, which is "clearly a cut above the other redwood companies," according to Sierra Club lobbyist Paul Mason. Photo, 2005, by Thomas J. Gibbons, special to the Chronicle

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Environmentalists are pleased with the competition to wrest the redwoods from Charles Hurwitz, the owner of Maxxam Corp. Creditors had said Maxxam's reorganization plan was unrealistic. Houston Chronicle photo, 2005, by Steve Ueckert via Associated Press

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Logging Map. Chronicle graphic by John Blanchard

The San Francisco family that founded the Gap has promised to invest $200 million in a plan to revive the bankrupt Pacific Lumber Co. and restore its heavily logged redwood forests - but only if a federal judge in Texas evicts its current owner, Houston financier Charles Hurwitz and his Maxxam Corp.

The dramatic proposal backed by the clan of San Francisco billionaires led by Donald and Doris Fisher, was aired Friday in federal Bankruptcy Court in Corpus Christi, Texas, where Pacific Lumber sought Chapter 11 protection in January after missing a payment on about $750 million in bonds.

That debt is a legacy of the financing Maxxam secured in 1986, when former junk-bond king Michael Milken helped Hurwitz acquire Pacific Lumber in one of the leveraged buyouts of the 1980s.

To pay that buyout debt, Maxxam greatly increased Pacific Lumber's harvest of redwoods, sparking a spate of tree-sitting and other environmental protests during the past two decades.

Not until April will the Texas Bankruptcy Court decide who gets to own what in this complex case. But the environmentalists who have long been Maxxam's most-vocal critics welcomed the Fisher plan to have one of the family's current holdings, the 9-year-old Mendocino Redwood Co., essentially clone itself to take over Pacific Lumber.

"It would be a vast improvement over the current situation if Mendocino Redwood Co. were to become the owner of (Pacific Lumber Co.'s) land," said Sam Johnston, a spokesman for the Environmental Protection Information Center in Garberville (Humboldt County).

But Pacific Lumber general counsel Frank Bacik said his firm stands behind its own reorganization plan and considered itself on par with the Fisher-backed company when it comes to logging practices.

"I would say that we are both good stewards of the land," Bacik said.

The first hint of the Fisher family's interest in the Pacific Lumber morass came in a court document filed late Thursday by Marathon Asset Management, a New York investment firm that has loaned at least $160 million to Pacific Lumber, which used the money for projects such as rebuilding its sawmill and creating a waste-burning power plant.

Marathon is one of the three major groups of creditors, and its debts are secured to some of those Pacific Lumber assets. The second group of creditors is the bondholders who collectively are owed around $750 million in debt that is secured to roughly 200,000 acres of forests in Humboldt County. Those trees are technically owned by an entity called Scotia Pacific, but for all practical purposes, it is the alter ego of Pacific Lumber. Both entities are controlled by Maxxam and Hurwitz.

A third group of creditors has a variety of unsecured debts, such as trucking services and, while they are in line to get paid, they are further back in the legal queue.

What occurred in court on Friday was a small but important procedural step. Federal Bankruptcy Court Judge Richard Schmidt, who kept the case in Texas for the convenience of Houston's Maxxam, told creditors they had until Jan. 30 to present their own plans to reorganize Pacific Lumber.

Thus far, only Maxxam and its subsidiaries have been allowed to propose a reorganization plan. In October, they told the court they wanted to sell big tracts of valuable redwoods to raise some of the money needed to revive the financially strapped Humboldt County firm.

Creditors said that plan, which valued Pacific Lumber's total holdings at roughly $1.4 billion, was unrealistic. Schmidt ordered the parties to try to settle their differences through mediation, and the failure of that process set the stage for Friday's hearing.

Before the hearing, Marathon, one of the big secured creditors, approached the San Francisco investment firm Sansome Partners, which is controlled by the Fisher family. Sansome is also the entity through which the family controls Mendocino Redwood Co., and Sandy Dean, an officer with Sansome Partners, is chairman of Mendocino Redwood.

"We've been watching the Pacific Lumber bankruptcy since it started in January," looking for a chance to get involved, Dean said Friday. Dean painted the Fishers as a "family (that) has a shared environmental ethic" as well as a track record in restoring logged-over lands through Mendocino Redwood, which has owned about 229,000 acres of timber in Mendocino and Sonoma counties since 1998, taking over lands that prior owners had logged heavily.

Since then, the Fisher-controlled firm has sought and received accreditation from an international group called the Forest Stewardship Council, which creates good-logging practices and audits logging firms on an annual basis, according to Robert Hrubes, a forester with Scientific Certification Systems in Emeryville. Hrubes and his firm have audited the logging practices of Mendocino Redwood as recently as September and certified them as meeting the stewardship rules.

"They are clearly a cut above the other redwood companies," said Paul Mason, a Sierra Club lobbyist in Sacramento.

But Bacik, the Pacific Lumber attorney, said his firm also exceeds normal logging practices. "We both have a habitat conservation plan; we both have sustained yield plans," he said.

The next stage will come when the various plans are presented in court on Jan. 30. In addition to Maxxam's plan to retain control, and the Fisher-backed bid by Marathon to take over Pacific Lumber, it is likely that the bondholders will present a plan that will involve selling off some or all of that 200,000 acres to which their debt is secured. The unsecured creditors could present their own plan or endorse one of the other three.

Between February and April, there will be a lot of arguing and deal-making leading up to what is likely to be several days of hearings to pick the winning plan to reorganize Pacific Lumber.

In the court documents that revealed their alliance with the Fishers, Marathon attorneys cast their bid as the middle ground between the "highly speculative" Maxxam plan and a "fire-sale liquidation" by the bondholders. "The court should categorically reject these extreme alternatives," Marathon said, and opt for the Fisher-backed plan to preserve "hundreds of jobs in the mill and forest" while managing the redwoods responsibly.