May 1st 2008

By Jesse Greenspan
Bankruptcy Law 360
May 1, 2008

Bankrupt Pacific Lumber and its parent company, Maxxam Inc., said Thursday that they would back a proposed reorganization plan by MRC/Marathon that is widely supported by federal officials and environmentalists.

"Consistent with a 20-year history of support for Pacific Lumber, Maxxam believes that this plan represents the best outcome for the company and its workers," Maxxam said in a statement.

The same day, however, Harvard University's endowment reportedly said it was ready to file its own reorganization plan for Pacific Lumber that would include the purchase of 200,000 acres of timberlands.

The plan would offer more money than the one put forth by logging company Mendocino Redwood Co. LLC and hedge fund Marathon Structured Finance Fund LP, but would otherwise be similar, the Associated Press reported. Another plan on the table was put forward by the bondholders of Scotia Pacific, a subsidiary of Pacific Lumber. Under that plan, the 200,000 acres of timberlands would be auctioned off.

The various sides have been disputing the case all of this week in the U.S. Bankruptcy Court for the Southern District of Texas.

Neither an attorney for Pacific Lumber nor an official with MRC responded to a request for comment on Thursday. An attorney for the bondholders wrote in an e-mail that it would be inappropriate to comment on pending litigation. About a month ago, California Gov. Arnold Schwarzenegger threw his support behind the reorganization plan proposed by MRC and Marathon, contending in a letter that the group's outline best satisfied the goal of protecting California timberlands.

"The MRC/Marathon plan best satisfies the first and second principles -- compliance with federal and state laws, permits and agreements -- because it makes concrete pledges to abide by all environmental laws, existing permits and agreements," the letter said.

"In addition the MRC/Marathon plan would uphold and maintain the Pacific Lumber Company Habitat Conservation Plan and other environmental obligations," it added.

Schwarzenegger said he is particularly concerned with reducing greenhouse gas emissions, and MRC has already demonstrated a commitment to "exemplary forestry management practices," according to the letter. Finally, he said that the plan appeared to offer the best chance for a reorganized company that is positioned for long-term success.

Those sentiments were echoed by the U.S. Fish and Wildlife Service, the Department of the Interior, the National Marine Fisheries Service and some environmental groups.

Oakland, Calif.-based Pacific Lumber, along with its subsidiaries, filed for bankruptcy protection in January 2007, citing regulatory limitations as the main cause of its liquidity problem. The company said the deals reduced its revenues and raised its harvesting costs.

Pacific Lumber listed assets and debts at over $100 million each in its Chapter 11 filing.

The case is In re: Scotia Development LLC, case number 07-20027, in the U.S. Bankruptcy Court for the Southern District of Texas.

--Additional reporting by Anne Urda