December 21st 2007

Associated Press
December 21, 2007

WASHINGTON (AP) - A federal judge Friday agreed to allow creditors of Pacific Lumber Co., under fire from its lenders and investors, to file their own proposals to fund the timber company's exit from Chapter 11 protection.

Judge Richard S. Schmidt of the U.S. Bankruptcy Court in Corpus Christi, Texas, took the unusual step of lifting Pacific Lumber's exclusive right to determine the course of its bankruptcy case, opening the door for creditors file as many as four competing Chapter 11 plans.

"One way or another this case is going to be resolved around the first of April," said Schmidt at a hearing Friday afternoon. The judge said rival plans should be filed by Jan. 31 with a confirmation hearing tentatively scheduled to begin April 1.

The judge's decision means that Pacific Lumber and parent Maxxam Inc. have lost control over the bankruptcy proceedings. A company in Chapter 11 must file a plan outlining how it will reorganize and repay creditors. Exclusive periods prevent creditors from proposing alternative proposals and allow companies to retain control of their bankruptcy cases.

Pacific Lumber, based in Scotia, Calif., has already proposed a bankruptcy plan that it says would raise more than $1 billion by selling 6,600 acres of old-growth redwoods that are designated as conservation land, and developing another 22,000 acres for luxury homes.

That plan has drawn fire from the company's bondholders and creditors. The bondholders, owed more than $700 million, want to file a Chapter 11 plan to sell the assets of Pacific Lumber and its subsidiary, Scotia Pacific Co.

Meanwhile, Pacific Lumber's lender Marathon Asset Management LLC said this week it's willing to team up with California logging company Mendocino Redwood Co. LLC to help finance Pacific Lumber's exit from bankruptcy protection. Pacific Lumber's official committee of unsecured creditors also intends to submit a Chapter 11 plan.

Still at issue is how much the company's timberlands are worth. Pacific Lumber, its bondholders, lenders and unsecured creditors are at odds over the company's valuation. Estimates of the timber company's worth range from the bondholders' low-end estimate of less than $500 million to Pacific Lumber's high-end estimate of $1.4 billion.

Schmidt, the bankruptcy judge, said he hasn't decided if he'll rule on how much the company is worth at a separate valuation hearing or at the confirmation hearing.

Pacific Lumber, which has been logging in Northern California for more than 130 years, filed for Chapter 11 protection along with five other Maxxam-owned timber businesses in January after failing to make a $27 million interest payment to bondholders.