the town dandy / By Hank Sims

Cabinet of curiosities

(March 29, 2007)  No news, no news, no news from Corpus Christi. The dispatches from the massive Pacific Lumber bankruptcy trial have been few of late, mostly because Judge Richard S. Schmidt, the Texas judge in whose lap the Maxxam Corp. placed its failed subsidiary, has been slow to judge whether or not to bend to the overwhelming sentiment of all concerned to move the case to California (see “The Town Dandy,” passim). Schmidt will likely rule any day now - perhaps he already has, by the time you read this. If he lets the case come home it will be a miracle.

In any event, things will be picking back up quickly this week. On Friday, the big Wall Street firms that hold $720 million worth of notes on 200,000 acres of Palco’s Humboldt County timber lands are scheduled to take center stage. They’ll be arguing for their right to foreclose on and take possession of those acres post-haste - like, within the next couple of months. More about that in a moment.

First I’d like to note that it’s been edifying, these last couple of weeks, to take leisurely strolls through the hills of paperwork the Pacific Lumber bankruptcy has generated. There’s some real gems in there. Take a look at that one-page sheet entitled “Payments to Company Insiders Within The Last Year,” aka Docket #429-1, which Mark Lovelace of the Humboldt Watershed Council brought to my attention. (Thanks, Mark!)

What #429-1 shows is how money flowed from Pacific Lumber to other units of Maxxam Corp., as well as key company players, in the year before bankruptcy was declared. And what do you know - though Pacific Lumber was suffering throughout 2006, with dire warnings of imminent failure filed in each of its reports to the Securities and Exchange Commission that year, it turns out that some people did not do so badly at all! In fact, in the three and a half months preceding the declaration of bankruptcy Pacific Lumber was able to send nearly $8 million upstream to Maxxam. That’s $8 million sent from Palco back to Maxxam HQ in Houston, squirreled away and shielded from the company’s many creditors. It’s been conclusively shown that the company was already preparing bankruptcy at this time.

There’s more. Former CEO Robert Manne, who left the company in July, took home $1.5 million for his six months of service. That presumably includes severance, because his replacement, George O’Brien, was awarded only $352,192 for the other six months. Gary Clark, the company’s chief financial officer, took home $442,525 for a full year’s work.

So that’s #429-1. Since I’m obsessed to the point of absurdity with fairness and balance in reporting, I’ll also give a shout-out to Docket #492, the company’s shot across the bow to the aforementioned noteholders. This Palco motion, whose full legal title is too lengthy to reproduce here, seeks to pull the mask off its creditors, and does so in fine, furious fashion.

Earlier, I said that the noteholders were “big Wall Street firms.” That’s true - the list includes names like Citibank, Bank of America, J.P. Morgan. It also includes a few lesser-known names, like Avenue Capital and Camulos Capital (see “The Town Dandy,” Feb. 15). But nobody except God and the bondholders themselves knows who owns how much. Does Avenue Capital, a major Democratic party donor, own 5 percent of the bonds or 95 percent? No one knows.

Docket #492 demands that the noteholders provide a precise accounting of themselves to the court, and in doing so slams the noteholders’ attorney, Evan Flaschen, for his stirring speeches on the justice of his cause and the evil of Maxxam (see “The Town Dandy,” March 8). “Nor does the [noteholders’ committee] stop at filing its pleadings with scurrilous, baseless and personal accusations,” Palco complains at one point, “in addition, its counsel continually seeks to try this case in the press.”

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