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Pacific Lumber Bankruptcy Plans Sent to Creditors; They Say the Company's Plan is Going Nowhere

Associated Press, 02.28.2008

A bankruptcy judge ruled Thursday that Pacific Lumber Co.'s creditors can vote on three rival plans to take the logging company out of bankruptcy, a key win for Pacific Lumber, which fought off a bid to halt its plan.

Judge Richard Schmidt of the U.S. Bankruptcy Court in Corpus Christi, Texas, ruled at a hearing that all the bankruptcy plans can move forward, overruling creditors who tried to kill the company's main plan.

Creditors argued against including it because it doesn't have enough support to survive. The company's bankruptcy lender, Marathon Asset Management, says it will never vote for it, making any chance of winning confirmation impossible.

"We know right now that that plan is a dead letter," said John Fiero, an attorney for the committee representing unsecured creditors.

But Pacific Lumber attorneys pushed for including the proposal, which calls for raising $550 million by selling and developing about 30,000 acres of timberlands. They said it could be the basis for a future settlement between various creditors and the company.

Schmidt backed that argument when he decided to include the plan in the disclosure statement, a plain language summary of a bankruptcy plan that must win court approval before creditors can begin voting. The statement Schmidt approved combines all the competing plans.

"There are some benefits that might be obtained in the event that ... somebody comes up with some sort of compromise among all these parties, and it might be the form of that compromise," he said.

Ballots for voting will be mailed to creditors in early March. The bankruptcy court will begin a hearing on April 8 to decide which plan to confirm, a ruling that will determine the fate of the company.

Pacific Lumber, based in northern California, has been in bankruptcy since January 2007. When its plan was first proposed last fall, it drew fire from Marathon and bondholders. Still, Pacific Lumber was protected from fighting off rival plans until December, when the court allowed other parties to propose their own schemes to reorganize the company.

The Bank of New York Mellon Corp., which represents the bondholders of Pacific Lumber subsidiary Scotia Pacific, has proposed selling Scotia Pacific's timberlands, which total more than 200,000 acres.

The bank has said in court papers that it has received preliminary offers between $550 million and $600 million for the Scotia Pacific's assets. Bondholders are owed nearly $800 million on notes issued in 1998.