the town dandy / By Hank Sims

Drying Up

“I wouldn’t say it’s not their place to bring up a concern,” Tucker said. “But, shit, they had two years.”

And the news from Corpus Christi, Texas, is not that much better. A ruling in the massive Pacific Lumber bankruptcy case, a year and a half in the making, could be handed down at any moment. The field has been winnowed, and there are only a couple of possible outcomes now. A few weeks ago, we would have said that the faction led by Mendocino Redwood Company, a greenish outfit to our south, would be the sure winner — it has the support of nearly everyone here on the ground, as well as mighty politicos in Sacramento and Washington. It has a complete solution for the company. The judge overseeing the case, Richard S. Schmidt, indicated that he believed Mendo Redwoods would be the best option for everyone. The timber lands would be sustainably managed, the mill would stay operational, the town of Scotia would be privatized, the company pensioners would be taken care of, and it would all stay under one roof.

But now things aren’t looking so ducky. The other faction left in the game — the bondholders, who together own $730 million worth of Pacific Lumber debt backed by Humboldt County acreage — are holding on fast, and people in the know are fearing that it is they who have the upper hand. Now led by Texas-based poker star/banker/billionaire Andy Beal, the noteholders have been making the case that the Mendo Redwoods plan is illegal and impossible because it doesn’t give them enough cash. Bankruptcy law states that if secured creditors don’t get their security — in this case, the Pacific Lumber timber lands — then they must at least be paid what that security is presently worth. What is it worth? That’s a very tricky calculation, and it’s now up to Schmidt to make the call. Mendo Redwoods’ figure is significantly lower than the noteholders. Beal himself has made an offer for the land that exceeds Mendo Redwoods’ proposed payout by several tens of millions.

Also, the noteholders’ plans gained a bit of rhetorical weight when it was announced that Red Emmerson, the 78-year-old self-made billionaire out of Redding who helms the Sierra Pacific timber company, said that he would put money down to acquire the Pacific Lumber mill in Scotia. Previously, the noteholders’ plans dealt only with the timber lands; they propose to sell them to the highest bidder. There was no provision made for the future of the company’s other assets, such as the mill or the town of Scotia itself. With a mill operator waiting in the wings, at least one psychological barrier to the noteholders’ plan has been removed.

What happens next? Either Schmidt sides with the noteholders or with Mendo Redwoods. But even then, it’s not so simple. If he sides with the noteholders, there’ll be an auction. The Texas businessman and the timber legend would certainly seem to have the inside track, but other parties — such as the do-gooding coalition helmed by the Nature Conservancy, which would preserve much of the most ecologically valuable land and keep the rest as a working “community forest” — might conceivably have some kind of play. They’d be betting against the big boys, though. If Schmidt sides with Mendo Redwoods, then there will almost certainly be an instant appeal, which could drag on for months or years, leaving the company in its present state of limbo.

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