April 10th 2008

By Nathan Rushton
The Eureka Reporter
April 10, 2008

The Pacific Lumber Co.'s bankruptcy proceeding entered the third day of testimony on Thursday to hash over the details of how the financial and forester consultants arrived at valuing the timber company's lands in a legal battle of whose experts were more right.

As it did in the two previous days, the questioning and cross-examining of the various expert witnesses went well into the evening at the courtroom in Corpus Christi, Texas.

Following attorneys' concerns that the proceedings might likely exceed the four days of hearings scheduled by the court to select one of the submitted plans, the judge presiding over the case announced that he had bumped several other court matters to make room for additional days from April 29 through May 2.

In repeating his calls for the proponents of the reorganization plans to arrive at some agreement over the approximately $300 million difference in the estimated value of the PALCO lands, judge Richard Schmidt said the two-week break might allow the attorneys for the Timber Noteholders and Mendocino Redwood Company and Marathon Structured Finance Fund to strike a deal.

But, Schmidt again raised the possibility that the contentious battle may not be resolved and told the lawyers that bankruptcy isn't always the answer to every business' problems.

"It might be in this case," Schmidt said.

Taking the stand on Thursday was James Fleming, a consulting forester and valuation expert hired by the Indenture Trustee representing Scotia Pacific Co.'s largest creditor — the Timber Noteholders — to place a value on SCOPAC's forestlands.

Fleming told the court he put the market value of the approximately 210,000 acres of "unique" lands at $605 million, approximately $200 million below MRC's estimate.

But Fleming's value was on par with a $603 million offer from Beal Bank owner and billionaire real estate mogul Andy Beal, a holder of a portion of SCOPAC's timber notes who has made a bid for the lands.

It was Beal's and several other bids, including one from The Nature Conservancy, which were used to help the Timber Noteholder's consultants arrive at their value.

Taking the stand on Thursday to explain those calculations was Glenn Daniel, a senior member of the international investment bank and financial consulting firm Houlihan Lokey, which was hired by the Indenture Trustee to estimate the value of SCOPAC's assets.

Daniel testified that he used Fleming's timber data in calculating his financial analysis that placed a combined value of SCOPAC's commercial timber lands, its marbled murrelet conservation area lands and other assets between $575 million and $670 million.

But before Daniel was grilled for nearly five hours over the work he was hired to do, lawyers for MRC unsuccessfully attempted to bar his testimony over concerns that his firm, Houlihan Lokey, was hired by the Timber Noteholders to lead the sale of SCOPAC's lands if their plan is confirmed.

"His firm has an economic motive to see the Indenture Trustee plan confirmed in this case," said Allan Brillant, an attorney for MRC.

Attorneys for MRC argued that because he admitted he had never valued timber companies, wasn't a forester or an expert in harvest analysis, attorney's for MRC challenged whether he was qualified to make his analysis at all.

Lawyers attempted to show that the analysis Daniel submitted to the court in mid-March was only a regurgitation of Fleming's numbers that were based on a draft report he received from his superiors that never substantially changed from the one he submitted to the court.

Expected to take the witness stand in Friday's proceedings set to begin at 9 a.m. in Texas are PALCO's Chief Executive Officer George O'Brien and vice-president Jeffrey Barrett.