March 16th 2008

By Nathan Rushton
The Eureka Reporter
March 16, 2008

One of the companies hoping to acquire the Pacific Lumber Co. invited residents to hear what it envisions for the future of the bankrupt business in a series of town hall meetings that kicked off Saturday.

Mendocino Redwood Co., which is owned by the Fisher family that owns retail clothing store Gap Inc., is teaming up with PALCO creditor Marathon Structured Finance in a bid for the company.

MRC Chairperson Sandy Dean, along with MRC's management team, led the meeting at the Red Lion Hotel Saturday in Eureka to discuss its reorganization and answer questions from the approximately 60 people who attended the event.

The meeting followed an earlier morning gathering in Fortuna.

A third meeting is scheduled for Tuesday at 2 p.m. in the Wharfinger Building in Eureka.

Attending the more-than-one-hour event were the candidates vying for the 2nd District supervisor seat, PALCO employees and other residents.

In drumming up support for its plan and offering a glimpse to the community of what MRC hopes will be its future in Humboldt County, Dean highlighted the nearly decade-old company's past and its commitment to managing forestlands in Mendocino County with a high standard of environmental stewardship while operating a profitable business.

Dean said MRC has increased its tree inventory during the past nine years as the company eliminated traditional clear-cutting, reduced harvest levels and attained third-party environmental oversight through Forest Stewardship Council certification.

"When we put this together, we were surprised at the degree of similarities between the two businesses," Dean said.

Among the major changes MRC envisions for a reorganized PALCO is the consolidation of Scotia Pacific Co.'s timber operations and PALCO's mill, which MRC's management believes can be run more efficiently.

That includes investing $10 million into the mill and restructuring the operations to react to what the markets demand, not to produce the most volume for the least amount of money, as Dean said PALCO has done.

While the acreage and miles of roads and streams in the tracts of lands under the two businesses are roughly the same, Dean said PALCO's lands will require double the amount of employees and nearly twice the amount of spending for its roads compared to MRC lands.

"We think that is Habitat Conservation Plan and (North Coast Regional Water Quality Control Board) related," Dean said.

As part of its plan that bankruptcy stakeholders will be voting on this month, the company intends to contribute $200 million in cash to the company, including $175 million to creditors that SCOPAC owes nearly $760 million in credit.

The note holders would receive another $325 million in new timber notes.

Responding to a question of whether the MRC plan was actually able to be approved because it falls short of paying in full the total amount due to note holders, Dean said the company believes it can, but that it will ultimately be up to the bankruptcy court.

The Official Committee of Unsecured Creditors is already backing MRC.

"We as a committee have voted for the MRC and Marathon plan," said Steve Wills, owner of Steve Will Trucking, a PALCO contractor and creditor.

Wills said the committee is in favor of MRC's plan because it sets aside the most amount of money for unsecured creditors, restores the company in family-owned business that keeps jobs and takes control of the company out of PALCO-parent company MAXXAM Inc.

Although MRC is unsure of the actual end numbers, Dean said the company estimates it will retain approximately 250 PALCO employees if it takes control, but indicated PALCO's senior management team would be out.

A PALCO official said the company currently employs approximately 350 to 375 employees.