Pacific Lumber settlement may be brewing
The Pacific Lumber Co. asked the U.S. Bankruptcy Court to break hearings mid-stride Tuesday so key parties, including Mendocino Redwood Co., can try to carve out a settlement.
In a surprise announcement in Corpus Christi, Texas, Palco attorney Shelby Jordan told Judge Richard Schmidt that the company had spent the past 30 hours working out a potentially consensual plan. The proposal would fit within the boundaries of the plan by Palco creditor Marathon Structured Finance Fund and Mendocino Redwood, Jordan said.
The proposal would not require going back to creditors for a vote, Jordan said. That suggests the reorganization plan would keep with Mendocino's desire to run the mill in Scotia and for Marathon to run the town.
At the time of the announcement, the negotiations did not appear to include the creditors whose $714 million loan is secured by Palco subsidiary Scotia Pacific's 210,000 acres of timber. But the noteholders' attorney, Bill Greendyke, agreed to the interruption, adding that if a settlement is reached, Palco would forego arguing for its own plan.
Essentially, the proposed deal would be a settlement among Marathon, Mendocino Redwood, Palco, Scotia Pacific and Palco's parent company, Maxxam Inc. If a settlement is reached, Maxxam and Palco would support the Mendocino plan, and scrap its own unlikely and controversial plan.
That could help push a settlement between all the parties and speed the case to an end. The announcement changes the tone somewhat after mediated talks between Mendocino Redwood and the bond holders last week failed to produce an agreement.
”The settlement, of course, is in process, and it's not done,” Mendocino Redwood Chairman Sandy Dean told the Times-Standard by phone from Corpus Christi Tuesday. “Mendocino Redwood is interested in settling with as many parties as possible.”
The announcement came after a representative for the indentured trustee Bank of New York, representing the noteholders, testified about an amended offer to buy the timberlands by Beal Bank. The bank is owned by investor and poker player Andy Beal, and its subsidiary, Scotia Redwood Foundation, has put in a bid of $603 million.
If the plan is confirmed by the court, it could lead to an auction of the timberlands. Bank of New York Vice President Chris Matthews testified in court Tuesday that he's confident the foundation's bid is real, and that bids would be forthcoming on the property once the “cloud of uncertainty” -- the bankruptcy process -- is lifted.
But a revised term sheet from the foundation apparently failed to make corrections promised by a Beal Bank official during earlier hearings. Matthews said he hadn't seen estimates of expenses for administrative claims, board members or for the sales process and what that might mean for what the noteholders can recover.
”It's a very real offer,” Matthews said.
Questioning by Mendocino Redwood and Marathon attorneys appeared directed at the uncertainty of the foundation's bid, and at how the company would be operated. The judge also raised concerns about the treatment of Scotia Pacific's unsecured creditors under the revised term sheet. Greendyke said there was a realization that those creditors would have to be “crammed down,” or would need to take less than they're owed.
”That is not an insignificant change,” Schmidt said.
Marathon attorney David Neier said the issue, and others regarding employee benefits, was not fully disclosed to creditors.
”Now they're rejecting all those claims,” Neier said. “I think their plan is patently unconfirmable as of today.”
A progress report is expected this morning.