April 29th 2008

The Times-Standard
April 29, 2008

The Pacific Lumber Co. asked the U.S. Bankruptcy Court to break hearings mid-stride today so key parties including Mendocino Redwood Co. can try to carve out a settlement.

In a surprise announcement, Palco attorney Shelby Jordan told Corpus Christi, Texas Judge Richard Schmidt that the company had spent the past 30 hours working out a potentially consensual plan. The proposal would fit within the boundaries of the plan by Palco creditor Marathon Structured Finance Fund and Mendocino Redwood, Jordan said.

The proposal would not require going back to creditors for a vote, Jordan said. That suggests the reorganization plan would keep with Mendocino's desire to run the Scotia mill and for Marathon to run the town.

At the time of the announcement, the negotiations did not appear to include the creditors whose $714 million loan is secured by Palco subsidiary Scotia Pacific's 210,000 acres of timber. But the noteholders' attorney Bill Greendyke agreed to the interruption, adding that if a settlement is reached, Palco would forego arguing for its own plan.

Essentially, the proposed deal would be a settlement among Marathon, Mendocino Redwood, Palco, Scotia Pacific and Palco's parent company Maxxam Inc. If a settlement is reached, Maxxam and Palco would throw its support behind the Mendocino plan, and scrap its own controversial, and unlikely, plan.

That could help push a settlement between all the parties and speed the case to an end. The announcement changes the tone somewhat after mediated talks between Mendocino Redwood and the bond holders last week failed to produce an agreement between those groups.

A progress report is expected Wednesday morning.