An attempt to settle the Pacific Lumber Co. bankruptcy through mediation has failed, sending the matter back into court Friday. A federal judge must eventually decide whether Charles Hurwitz's Maxxam Corp. or its creditors should control some 200,000 acres of redwood forest.
Pacific Lumber filed for Chapter 11 protection in Texas in January after missing a payment on about $714 million in bonds. That debt traces to 1986, when Maxxam acquired the Humboldt County logging company in a leveraged buyout and financed the purchase by cutting more trees.
In October, Pacific Lumber unveiled a reorganization plan before federal Bankruptcy Court Judge Richard Schmidt of Corpus Christi, Texas, who has maintained jurisdiction in the case at the behest of Houston's Maxxam.
Under that plan, Pacific Lumber sought permission to sell roughly 29,000 acres of its best redwoods to raise $600 million to help in its reorganization.
Creditors said the trees weren't worth nearly that much, and faced with their objections, Schmidt ordered the parties to meet with a mediator in an attempt to work out a compromise.
But that effort failed to produce an agreement and attorneys representing Pacific Lumber's most important creditors - those who own bonds secured against its timber lands - filed papers Tuesday arguing that the company is spending its assets on legal fees and is "in danger of being administratively insolvent."
In essence, the bondholders want Schmidt to let them present their own plan to reorganize the company and end the exclusivity that allows Pacific Lumber to control the reorganization process.
Pacific Lumber general counsel Frank Bacik said the company stands behind its plan, and he argued that it would only waste money and time if the court and the company had to evaluate rival plans.
It is possible but unlikely that Schmidt will issue a ruling Friday, but regardless of when and what he decides, the complexity of the issues insure that this case will continue well into 2008.San Francisco Chronicle
