July 29th 2008

By John Driscoll
The Times-Standard
July 29, 2008

Final is final.

U.S. Bankruptcy Court Judge Richard Schmidt in a Monday ruling pushed parties in the Pacific Lumber Co.'s year-and-a-half long bankruptcy to seal a deal to rebuild the company or risk contempt of court. A final order issued by the Corpus Christi, Texas court earlier this month is just what it says: final, wrote Schmidt.

"The parties are bound by the terms of this order," Schmidt wrote. "Failure to abide by its terms risks contempt."

Mendocino Redwood Co. -- which won approval of its restructuring plan for the Scotia company -- has said it is ready to close on the transfer, and has taken a number of steps to provide for it. The largest creditors of Palco subsidiary Scotia Pacific have won a motion by the 5th U.S. Circuit Court of Appeal challenging the ruling, but lost a request for an immediate stay.

Those bond holders then changed tactics, arguing that the very definition of the final order in the confirmation plan is one that has no appeals facing it, and questioned Schmidt's jurisdiction. Seeking to wrap things up, Mendocino asked Schmidt to compel the noteholders to comply with his order.

Schmidt on Monday denied that request, but apparently because he believes the order is final and should be followed as is. He wrote that the noteholders' efforts are the latest in a series of efforts to stall or disrupt confirmation of the plan by Mendocino and Palco creditor Marathon Structured Finance Fund,
Advertisement
and highlighted a number of contradictory strategies they've employed.

Schmidt also asserted that the finality of the confirmed plan is not at issue in the appeal, and that he retains jurisdiction over it.

Mendocino Redwood Chairman Sandy Dean declined to comment for this story.

Essentially, the critical element left to be done is for money to be wired to the noteholders, transferring title of Palco's 210,000 acres to Mendocino Redwood. A new company called Humboldt Redwood Co. would be formed to run the Scotia mill and the timberlands, and Marathon will take over management of the town and the power plant there.

But hours after Schmidt's Monday ruling, the noteholders took another shot at the 5th Circuit, complaining that Schmidt had overstepped his authority and asking for reconsideration of a stay while an appeal can be considered. The 5th Circuit has set a schedule to consider the appeal, but wouldn't hear oral arguments until October.

Asked if the transfer of the company would commence, Scotia Pacific spokeswoman Heather Muller said, "We're waiting for direction from the courts."