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Wednesday, September 5, 2007

Pacific Lumber Strips Land, Forgets Where it Hid the Money

Champion Clear-cutter Pacific Lumber Co. files for bankruptcy

--2 stories
also, to get information on the bankruptcy filing, click here:

The timber giant on California's North Coast says environmental limits have kept it from making a profit. A state official denies the claim
By Tim Reiterman, Los Angeles Times, January 20, 2007

SAN FRANCISCO — Pacific Lumber Co., a timber giant on California's North Coast for more than 140 years, has filed for bankruptcy, contending that environmental restrictions imposed by the state have made it impossible to log enough to make a profit.After years of threatening bankruptcy, Pacific announced Friday that the company and its subsidiaries had filed for Chapter 11 protection a day earlier in U.S. District Court in Texas.The companies seeking to reorganize are Pacific, Scotia Pacific Co., Britt Lumber Co. and Scotia Development, which harvest, grow, mill and sell redwood and Douglas fir. They have more than 500 employees.A spokeswoman said Pacific did not have the money to make a $27-million interest payment due Friday. Its parent, Maxxam Inc., recently reported long-term debt of more than $800 million.Pacific said it was facing the "liquidity crisis" because excessive environmental requirements were imposing high costs while restricting the amount of timber the company could cut on its land in Humboldt County.Pacific contends that the state has violated the historic Headwaters Agreement of 1996 — a $480-million deal under which the state and federal governments acquired 7,500 acres from Pacific, creating the Headwaters Preserve of ancient redwoods. The company agreed to limit logging on its remaining 200,000 acres.The bankruptcy filing comes one month after Pacific sued the state, alleging that it breached the Headwaters accord, thus preventing the company from remaining economically viable without restructuring."The government restrictions above and beyond those agreed to in Headwaters made it impossible for the company to generate the kind of income it needed," said Edgar Washburn, a longtime attorney for Pacific, who filed the lawsuit.Pacific has clashed repeatedly with environmentalists and the North Coast Regional Water Board, contending that the agency's environmental restrictions were putting too much land off-limits to logging.Bill Rukeyser, state Water Resources Control Board spokesman, denied that environmental enforcement has brought the company to bankruptcy. "There are plenty of well-run companies in California in a variety of fields that are making a profit and are complying with regulations that protect water quality," he said.Pacific, which has its own mill town of Scotia, was purchased in 1986 by Houston-based Maxxam, headed by financier Charles Hurwitz.Officials said they hoped the Headwaters deal would end years of controversy and protests by environmentalists who contended that excessive cutting had rapidly depleted redwood forests, harmed wildlife habitat and filled streams with silt.The company agreed in 1999 to a plan for conserving the habitat of 17 species on its remaining land.U.S. Sen. Dianne Feinstein (D-Calif.) issued a statement Friday saying, "I believe that Pacific Lumber is required to meet the obligations of the … plan whether or not they are in bankruptcy and to live up to the agreement they signed eight years ago."Spokeswoman Andrea Arnot said the company has been following the habitat protection agreement and mitigating the environmental effects of its logging.A longtime Pacific critic, Mark Lovelace of the Humboldt Watershed Council, said, "While sale and conversion of land is a concern, the highest and best use of this company's land … remains timber production."
Pirates North of the Klamath

By Carl Pope, Executive Director of the Sierra Club, Monday, January 22, 2007

Scotia, CA -- The announcement that Pacific Lumber (PL) would attempt to escape the regulatory authority of the State of California by heading for bankruptcy court brought back bitter memories.

PL was paid enormous sums by the federal government for the protection of the Headwaters Forest but never accepted the fact that being a good environmental steward was part of the deal. Indeed, the purchase almost fell apart at the last minute when PL and then-Governor Pete Wilson attempted to weaken this requirement. Fortunately, the Majority Leader of the California Senate, John Burton, held firm and, in the last hour of the legislative session, told PL that if it insisted on weakening environmental standards, it would have to kiss a half billion in federal and state tax dollars good-bye. PL blinked.

Now the outlaw is back, asking a federal bankruptcy court to release it from the requirement that it comply with California's water quality standards. The latest shenanigans comes as the company filed for, "Chapter 11 bankruptcy protection, saying it is 'facing a liquidity crisis arising from regulatory limitations on timber harvest.' In a release, the company said its annual timber harvest volumes and cash flows will be below the levels needed to meet its debt service obligations." The solution? Cut more timber, even at the expense of water quality and endangered salmon runs.

This is standard operating procedure for PL, Maxxam (the holding company that controls it), and Charles Hurwitz, (the Houston Financier who manipulates it). And it's personally painful for me, because I received a phone call from a distraught PL employee the afternoon when Hurwitz first made his hostile takeover bid for Pacific Lumber, which at the time was the model of sustainable forestry in the United States. The employee explained to me back in 1985 that Hurwitz was going to take the company over, plunge it into debt, and try to pay the debt off by liquidating the remaining old growth redwoods. She wanted to know if there was a way the company could fight Hurwitz off.

I thought there was. Pacific Lumber could take the water quality and conservation benefits of its sustainable timber practices, sign a permanent commitment to them, and receive in exchange a conservation easement worth hundreds of millions to its shareholders. This conservation easement would have been good for the company, but a poison pill for Hurwitz and his plan to clearcut the Redwoods. I approached sympathetic members of the Pacific Lumber Board. At first they were interested, but asked me not to go the press. Then, at the last minute, their lawyers told them that if they stood up to Hurwitz, he would sue them personally, and they could be bankrupted -- whereas if they went along with Hurtwitz, the lawyers said, he could and would legally indemnify them against the lawsuits which followed. Faced with personal ruin, the board gave in and allowed Hurwitz to take over. Only later did we learn that the lawyers, whether correct or not, had a conflict of interest -- because they were also the lawyers for leveraged buy-out king Ivan Boesky, who was, secretly, Hurwitz's partner in the hostile takeover.

I've always wondered what would have happened if I had taken our idea to the press. But now even the modest protection we won in the Headwater Deal is at risk -- because federal bankruptcy judges have become the new court of last resort for crony capitalism of the sort that Hurwitz and his fellow pirates represent. Want out of an expensive underfunded pension plan? Follow the lead of the airlines who've gone to bankruptcy court to find a way to dodge their responsibilities. Want to raise electricity rates for your customers beyond the tolerable level? Just transfer your assets to a holding company, declare bankruptcy and leave the rate-payers with the liabilities, which is what happened in California's electricity crisis. Find it awkward to clean up your toxic waste? Use the same ploy: Declare bankruptcy and walk away from your obligations to communities as ASARCO is trying to do.

And now the bankruptcy judges are being asked to rule that Pacific Lumber can cut trees it needs to pay off its junk bond debt. Yes, this stands the concept of the rule of law on its head -- but we live in a topsy-turvy world. I'm not sure they can't get away with it -- unless Congress fixes federal bankruptcy law fast, as Senator Maria Cantwell proposed last year.

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