PACIFIC LUMBER REORGANIZATION PLAN

PL has filed their plan of reorganization, seeking to sell the Marbled Murrelet Conservation Areas for the inflated price of $400 million, convert 21,800 acres for low-density development, sell the town of Scotia, and hold on to the remaining 181,000 acres. PL's plan tremendously overvalues these lands, sometimes by as much as 10 times the assumed value.

PL had claimed that Maxxam would make a 'significant contribution' to the reorganization, but all that Maxxam offers is to forgive $40 million inter-company indebtedness (a claim by Maxxam against PL!) and to offer the company's real estate expertise, as well as shouldering some tax burden from future development.

Click here to see Bankruptcy Attorney Peter Clapp's Summary of the PL Plan.

Thanks to Mark Lovelace of the Humboldt Watershed Council for providing the following information.

Bank of New York Response to PL Plan

Click here to see the response by the Bank of New York to the PL Plan.

It states "The Indenture Trustee believes that the Debtor’s Plan should not and will not be confirmed for the following essential reasons:"

A few quick excerpts:

   "the Redwood Ranch project requires numerous changes in law that are not likely to occur."

   "The Debtors' claim that their assets have a total present value of $1.4 billion is completely unreasonable; this is more than three times greater (and almost $1 billion higher) than the values described in the Di Mauro Declaration."

   "The Debtors' Plan is not feasible. Scopac's bankruptcy case was commenced because it was unable to service the annual interest payments of $56 million on the approximately $715 million of principal owed on the Timber Notes. Under the Debtors' Plan, the Debtors will emerge from bankruptcy with approximately $1.1 billion in total debt, over $200 million more than when they started their cases, subject to interest rates higher than those they could not afford to pay pre-petition, without any significant improvement in the lumber markets, the regulatory environment or the Debtors' timber
operations."

   "The Redwood Ranch residential redevelopment... has no realistic possibility of ever being completed... For example, the Humboldt County Planning Commission called an emergency meeting after reviewing the Debtors' Plan and passed, on October 9, an Ordinance ordering a 45 day moratorium on the issuance of building permits on timberlands. See Exhibit 1 hereto. This Ordinance makes extensive findings that Debtors’ proposed Redwood Ranch development is not in the public interest."

  The BoNY letter references John Driscoll's article on the Supervisors' hearing and attaches it as an exhibit.

Summary Excerpt from PL Reorganization Plan
A decade ago, the Debtors incurred a substantial portion of their secured debt with the expectation that the Headwaters Agreement would result in assured harvest levels. That expectation was dashed by California’s breach of the Headwaters Agreement and a snarl of litigation. In filing these chapter 11 cases and proposing the Plan, the Debtors realized that business as usual would not solve this dilemma for the Debtors or for their creditors. The Debtors needed to find a way simultaneously to address the environmental and regulatory challenges and unlock trapped values in their embattled timberlands.
    As a result, the Debtors have decided to put some of their most unique property to a higher and better use. The most environmentally sensitive areas will become permanent preserves. The adjacent areas will be developed as residential and recreational property, with MAXXAM’s invaluable assistance. This development project will leave the Debtors with approximately 181,000 acres of commercial timberlands valued at nearly $800 million and approximately 29,000 acres of combined preserves and new development properties with a present value in excess of $600 million.
    All of the assets and businesses of the Debtors will also be merged into a single consolidated enterprise, which is referred to herein as Reorganized Palco. From an operational perspective, the Plan contemplates a new business model for continued operation of the Scotia sawmill and continued forestry operations, but at harvest levels that are significantly lower than current or historical rates. It also contemplates the sale of Scopac’s most valuable timberlands, 6,600 acres of ancient redwood forest, to a buyer or buyers willing to commit to the permanent environmental protection of these unique and scarce resources. Finally, it provides for the creation of a new low-density conservation and preservation-oriented real estate development project, from which significant acreage adjoining portions of the 6,600 acres of ancient redwood forest would be developed and sold. The new operating paradigm and asset sales will provide sufficient cash flow to meet the current and future debt obligations of the reorganized entity.
    Reorganized Palco will continue its commitment to being a leader in environmental stewardship and a premier supplier of quality, green-certified redwood and other forest products to worldwide markets.
    The Debtors’ appraisals of their assets, determined in consultation with their experts, indicate the appraised value to be in excess of $1.4 billion, without giving effect to the potential value of the Debtors’ affirmative claims against the government of the State of California and certain of its agencies. These claims are the subject of pending litigation that is not expected to be completed before the Effective Date of the Plan, and the feasibility of the Plan does not in any way depend on their resolution. The Debtors estimate that the total allowed amount of all claims against their chapter 11 estates will approximate $1 billion, leaving equity of several hundred million dollars. Accordingly, the Plan pays all creditors in full, leaves equity intact, and preserves jobs, business operations, and going-concern value.
    The Debtors’ timberland assets, referred to herein as the Palco Timberlands, consist of two components. The first is the 203,400 acres of commercially operated timberlands that historically have generated the bulk of the Debtors’ cash flows. The second component consists of six groves of ancient redwood trees totaling approximately 6,600 acres. Because these groves contain primarily old-growth redwood timber, they are habitat well suited for seasonal use by the marbled murrelet, a coastal seabird, and have been designated as “marbled murrelet conservation areas” or “MMCAs.” These areas are distinct from the Headwaters Forest, an area that was sold to the State of California and the United States in 1999 pursuant to the Headwaters Agreement (see Section 1.3 below) and is now operated as a public preserve by the U.S. Bureau of Land Management. These groves are subject to extraordinary environmental restrictions and contain the bulk of the last remaining old-growth redwood trees on the Palco Timberlands. The Debtors will refer to them in this Disclosure Statement as the Ancient Redwood Groves.
    As a result of California’s breach of the Headwaters Agreement (see Section 3.2 below), the Debtors’ projected cash flows from their harvest and milling operations, as set forth in Exhibit D to this Disclosure Statement, are expected to be below levels necessary to service all of their debt, including the Prepetition Timber Notes owed by Scopac. In order to generate cash flows sufficient to pay down the New Timber Notes (see below) and satisfy other claims against their chapter 11 estates, the Debtors intend to sell the Ancient Redwood Groves and develop and sell nearly 22,000 acres of timberlands and ranchlands surrounding them. The Debtors have engaged the services of valuation and marketing experts to formulate the Development Project. This project is described in more detail in Section 6.3 of this Disclosure Statement.
    The Development Project will proceed in two phases. First, the Debtors will sell the Ancient Redwood Groves over a 24-month period to a buyer or buyers willing to commit to the permanent environmental protection of these unique and scarce old-growth redwood trees. The sale of the Ancient Redwood Groves will carefully maintain all existing environmental protections negotiated in connection with the Headwaters Agreement. For example, as set forth in more detail in Section 1.4 below, the transfers will be conditioned on real estate covenants mandating appropriate land use and management in keeping with stated conservation goals.
    Second, over the next five to eight years, the Debtors will develop and sell approximately 21,800 acres of timberlands adjacent to four of the six Ancient Redwood Groves and adjacent to the Headwaters Forest, in the form of 160-acre parcels for high-end, low-density residential or recreational developments that will boast incomparable views, and for some of the parcels, access to the Ancient Redwood Groves. These surrounding lands are referred to in this Disclosure Statement as the Redwood Ranch Development. This project will proceed along the lines established in previous “trophy” real estate developments in which MAXXAM has had substantial experience, as described below. Overall, the project will increase the scope and scale of resource protection and habitat conservation over the currently planned use for commercial timber harvest, while remaining consistent with the current zoning, local, state and federal land use law, and applicable habitat conservation plans.
    The Debtors expect the sale of the Ancient Redwood Groves to yield at least $400 million in gross proceeds over the next 24 months. They expect the development and sale of the Redwood Ranch Development to yield at least $780 million in gross proceeds over the next five to eight years. The Debtors estimate that the present value of the sale of the Ancient Redwood Groves and the Redwood Ranch Development together exceeds $600 million. On the basis of projected cash flows, the Debtors value the remaining Palco Timberlands at nearly $800 million. The Debtors also expect to raise approximately $75 million in gross proceeds from the sale of certain non-core assets, including the town of Scotia, California and Palco’s former mill sites. In addition, the Debtors expect to obtain approximately $325–350 million in Exit Financing, consisting of a $150 million term loan, a $100–125 million revolving credit facility, and a $75 million facility to be available to redeem a portion of the Prepetition Timber Notes. This latter facility is referred to herein as the Timber Notes Redemption Facility. Finally, as part of the Plan, MAXXAM has committed to providing important economic contributions with an aggregate present value of more than $150 million.
    As noted above, the Debtors propose to pay all creditors 100% of their allowed claims. Administrative and priority claimants will be paid in full according to the Bankruptcy Code requirements for each. Unsecured creditors will also be paid in full, through either cash on the Effective Date or a three-year interest-bearing note, depending on the classification and size of the claim, as further described below. Secured creditors will be paid as described immediately below.

PL Plan at a Glance

Summary Joint Plan of Reorganization (in phases).

Click on the graphic for each of the following to see the full image:

Redwood Ranch Development Project Map	Debt Transformation	Asset Transformation

Click on the titles below for each of the complete reorganization plan documents:

Disclosure Statement

Summary of Joint Plan Reorganization

Exhibit A (30 pages)

Exhibit B

Exhibit C

Exhibit D (12 pages)

Glossary

See our Media page for media articles related to the reorganization.