the town dandy / By Hank Sims

Redwood U.

(Jan. 10, 2008)  As we speak, all around the country various high-powered financial players and their consultants and their attorneys are busy drawing up plans for the next phase of the Pacific Lumber Co.’s 150-year history. Judge Richard S. Schmidt, who has overseen the company’s year-long bankruptcy case, last month decreed that by the end of the month all interested parties must file plans detailing how they propose to pay Palco’s creditors and put the company back on its feet, in one form or another. The deadline is approaching.

As we wrote a couple of weeks ago (“Town Dandy,” Dec. 27), the multitudinous parties involved in the case seem to be dividing themselves up into four camps. There is Charles Hurwitz’s Maxxam Corp., the company that acquired Pacific Lumber in a leveraged buyout 21 years ago and drove it into the dirt. There are Hurwitz’s principal creditors, the holders of its “timber bonds” — Wall Street firms who are owed upward of $700 million and who hold notes on Palco’s 200,000 acres of Humboldt County forest land. There is Marathon Asset Management, which loaned $160 million to Pacific Lumber late in the game and received notes on the town of Scotia and the Pacific Lumber mill. And then there are the hundreds of “unsecured creditors,” who are owed money but have no collateral at all. Each of these parties has suggested that it will file a plan for the company by the Jan. 30 deadline.

In the early stages of the bankruptcy, Humboldt County environmentalists had pinned their hopes on the holders of the “timber bonds.” Their first lead attorney, a firebrand by the name of Evan Flaschen, spoke movingly from the floor of the courtroom about the sanctity of Pacific Lumber’s ancient redwood groves and the utter perfidy of the Maxxam Corp., which was music to the environmentalists’ ears. (And the ears of about everyone else in Humboldt County, by that time.) Too, there were whispers that the bondholders had been talking with members of a local organization called the Timber Acquisition Group — an alliance of businessfolk and enviros, loosely associated with the Redwood Forest Foundation down in Mendocino County. The TAG’s idea was to operate Palco land on the “community forestry” model, with sustainable harvest rates and community input into management decisions.

Then, a month or so ago, it looked like all that had fallen apart. The bondholders seemed to signal that their upcoming plan would amount to a fire sale, in which company assets are sold off to the highest bidder. The enviros we talked to seemed to be expressing more interest in the Marathon plan, in which the reasonably green Mendocino Redwood Company would take over management of the Palco lands.

But is it too early to count out the TAG? Mattole activist David Simpson, a TAG member, thinks so. Though Simpson said he wasn’t privy to the high-level discussions taking place, and was bound by a confidentiality agreement that prohibited him from disclosing who those conversations were with, he could at least verify that some sort of discussions were still happening.

“All I can say is we’re still in it,” Simpson said. “We’re still in it, we’re working on our plan, and hopefully it will be a plan that has benefits beyond what other alternatives can provide.”

Now for the news. The North Coast Journal wasn’t able to listen in to the bankruptcy court hearing that took place Tuesday, but a reliable source filled us in. This source said that it was his impression that the bondholders were no longer talking about liquidation at all, and seemed to be preparing to put forward a recovery plan for the company. Perhaps most intriguingly, according to the source the current attorney for the noteholders, Zack Clement, told the court Tuesday that his clients had recently received interest from a “large university endowment fund,” unnamed. Apparently, Clement also named other potential partners — the Save-the-Redwoods League, the Nature Conservancy and Bank of America. The latter, through one of its “green” initiatives, provided the capital for the Redwood Forest Foundation’s buyout of 60,000 acres of land in northern Mendocino County last year.

We’ll all know on Jan. 30. After that, the real jockeying gets underway. Bankruptcy recovery plans are subject to a rococo system of voting understood only by $2,000-per-hour lawyers. All the people owed money get some sort of say in which plan is chosen, as does Maxxam. There’ll be lots of horse-trading and vote-swapping and such, but it looks as if the noteholders and Marathon are in pole position.

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