Three New Pacific Lumber Reorganization Plans Filed With Bankruptcy

Three New Pacific Lumber Reorganization Plans Filed With Bankruptcy

January 31, 2008

For more information please contact: Sam Johnston, EPIC, 415-377-0415

Three reorganization plans for the bankrupt Pacific Lumber Company (PL) were filed by yesterday’s court deadline. PL’s two largest secured creditor entities each filed separate plans, as did PL itself, amending its earlier proposals. The review process will commence in a Court confirmation hearing in Texas on April 1, 2008.

The three plans differ from each other in significant ways, including how the PL companies will be reorganized, their financial structure, payment to creditors, ownership of the Scotia Pacific timberlands and Pacific Lumber town and mill assets.

The Reorganization Plan Proposals

EPIC’s initial review shows that PL’s plan would enable its ultimate parent company, Maxxam, to retain control of PL as well as to develop and sell a significant amount of forestlands (about 22,000 acres) for development. Maxxam’s continued control would mean the continuation of a forest management regime that has failed to protect economic vitality, watersheds, and habitat. Further loss of timberlands to development, particularly in the areas PL has targeted, is unacceptable.

Scopac’s largest secured creditor, a group of lenders referred to as the Noteholders, firmly maintain that PL’s proposed plan is infeasible, and have filed a plan that would eliminate any further control in the companies by Maxxam and would result in a liquidation of Scopac’s lands in a bidding process.

PL’s largest secured creditor, Marathon Structured Finance Fund (Marathon), has teamed with the Mendocino Redwood Company (MRC) with a plan intended to avoid a liquidation sale, keep PL and Scopac united as one company with MRC the major owner, and establish a new company owned by Marathon to manage the town of Scotia and other non-timber operational assets.

In addition to these three proposals, an outside consortium of organizations has announced its desire to purchase the companies. This alliance of conservation groups including The Nature Conservancy, Save-the-Redwoods League and the Community Forestry Team (a coalition of Humboldt County-based forestry, conservation and environmental advocates) has joined with several private capital investors including Atlas Holdings, Bank of America, Conservation Forestry LLC and the Redwood Forest Foundation Inc. to offer an innovative proposal.

Their plan would create a permanent conservation easement over almost 200,000 acres as part of a plan that “guarantees good, sustainable timber management in perpetuity and at the same time protects against development.” Among other things, the proposal would offer the Humboldt community “the opportunity for optimum participation and the option of a level of community ownership.”

EPIC’s Initial Reaction to the Plans

EPIC greatly appreciates the efforts undertaken by the major creditors to present reorganization plans and the proposal by the alliance of conservation groups promoting a sustainable vision for the future of Humboldt County. These efforts highlight the ultimate importance of removing Maxxam from control of these companies. In contrast to these efforts, PL has continued pushing the company in a downward spiral to benefit Maxxam at the expense of its creditors, the local community, and ecosystem recovery and health.

EPIC recognizes the risk going forward if an agreement cannot be reached among the non-Maxxam parties. One possible outcome of a lack of agreement is an auction sale of the PL companies, which could result in a purchase by another industrial logging firm or, worse, development interests. There is no guarantee that a favorable outcome will result from an auction sale of the companies.

EPIC is evaluating these proposals according to certain core principles that EPIC maintains must be addressed to meet the needs of the forest and the local economy, which include:
* permanent protection of remaining old-growth trees and recruitment of additional late seral forest, especially as needed for listed and sensitive species such as the marbled murrelet and coho salmon;
* use of selection/uneven-age logging and elimination of destructive silvicultural practices;
* preservation and enhancement of workers, jobs, the local economy, the Scotia mill, and community involvement in the company;
* protection of watersheds and repair of damaged watersheds to protect resources, downstream residents and other stakeholders;
* company transparency on inventory, inventory projections, and financial and debt structuring;
* permanent protection for Marbled Murrelet Conservation Areas (MMCAs) plus buffers.

Governor Schwarzenegger Weighs In

California Governor Arnold Schwarzenegger has weighed in, stating that “… [t]hese lands and assets represent a unique public trust for the state of California” and declaring the issue to be “of paramount importance to all Californians.” The Governor urges that the Headwaters Agreement and associated Habitat Conservation Plan should remain in place for any new ownership and that any reorganization plan should preserve timberlands, watershed and wildlife protection, and local economic health.

“Now can begin the hard work of evaluating these proposals to see what will work best for the forest resources and for the people of Humboldt County,” EPIC’s spokesman Sam Johnston commented. “As Maxxam continues to take what it can for its own benefit, the people and natural resources of Humboldt County need a new solution: an ownership that provides good jobs, local economic benefits, and much needed and overdue habitat protection and watershed restoration.”