July 8th 2008

The Times-Standard
July 8, 2008

A potentially deal-killing claim in the Pacific Lumber Co. bankruptcy case was uprooted by a federal judge Monday, leaving what appears to be only a minor hurdle the Mendocino Redwood Co. must clear to restructure the company.

Judge Richard Schmidt ruled that Palco's biggest creditors hadn't proved that the value of the timberlands had dropped by tens of millions of dollars since the case began in Jan. 2008. That value, the timber noteholders claimed, was more than $170 million. If awarded, it would have thwarted Mendocino from closing a deal to reorganize Palco.

Schmidt ruled that the other assets of the timber-holding arm of Palco -- Scotia Pacific -- had only declined $3.6 million. That amount must be tacked on top of the judge's finding that Mendocino must pay $510 million for the land.

The court on Tuesday will consider whether to grant a stay to the noteholders while they appeal the judge's early June plan confirmation order.