the town dandy / By Hank Sims

On the Job

(March 6, 2008)  A lot went down at the crucial Pacific Lumber bankruptcy hearing we previewed last week. Most importantly, each of the four plans on the table were sent forward, and now all the various interests in the case — the owners of the company and all the people the company owes money to — will be putting the issue to a vote, according to the complex rules of Chapter 13 bankruptcy law. The votes are due around the end of the month.

Around mid-March, then, we should have a solid idea of what the next Pacific Lumber will look like. Will Mendocino Redwood Co., the eco-friendlier timber company to our south, step in and take over? Or will Palco’s approximately 200,000 acres of Humboldt County timberland be put up for auction? Or will the company be carved up between its current owner, Charles Hurwitz’s Maxxam Corp., and the company’s two principal creditors (the “cram-down” plan)? Or will Maxxam stay in control, seeking to pay off its debt by developing a big swath of its holdings and selling others to the government at ridiculously inflated prices?

The latter two options are the ones put forward by Maxxam itself, and one came close to being taken off the table at Thursday’s hearing at the request of several groups of the company’s creditors. They made the case that the coming vote would be a little bit less confusing if there were one fewer intricately detailed plan on the table. They argued that the Maxxam “consensual plan” — the last one detailed above, which in an earlier version so pissed off county government that the Board of Supervisors took emergency action to try and torpedo it — stood no chance whatsoever of coming to fruition.

Creditor Marathon Capital Group, which is behind the Mendocino Redwood Co. plan, said that there was no way that it would ever vote for the Maxxam consensual plan, and due to the nature of the plan and the rules of bankruptcy Marathon held an effective veto over it. Also, a lawyer representing the holders of the company’s “timber bonds” — around $730 million dollars worth, secured against the company’s Humboldt County acreage — said that he believed his clients would never consent to the plan. And a lawyer representing unsecured creditors said that he would recommend that they vote for the Mendocino Redwood Co. option.

“If it’s a done deal that this plan will never be confirmed, I have a hard time sending it out,” said Judge Richard S. Schmidt, acceding to these arguments. But an attorney for the company later argued that it would do little harm to send it out, and the plan could provide the basis for some negotiation — that no matter how many key parties denied they would ever vote for the plan, perhaps they could be brought around. So Schmidt left it in, and the various plans go out for vote.

Perhaps the most interesting part of the hearing was what came next, after it seemed that all the principal business was done. A bit of a fight broke out between lawyers representing Scotia Pacific Co., the Pacific Lumber subsidiary that manages the timberland, and Pacific Lumber proper. It turned out that Pacific Lumber had cut off payments to its sister company, and as a result Scopac had to seek additional loans to tide it over.

A Pacific Lumber attorney outlined the situation facing the company. At the time of the hearing, the company had about 25 million board feet of lumber ready for sale, but few people were buying. It had only $1.5 million in the bank, it said. And it was in a bit of a pickle, because parent Maxxam Corp. had abruptly stopped buying logs and lumber to tide the company over.

Where had Maxxam gone? Is Hurwitz cutting his losses, and cutting Pacific Lumber loose? That would seem to be the implication, but you can forget ever getting anyone on the record to say as much.

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