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Strapped Pacific Lumber Plans to Sell 60,000 Acres

The sale is part of `larger restructuring efforts,' the president says. The timber titan has been threatening to file for bankruptcy protection.

February 11, 2006|Tim Reiterman | Times Staff Writer

SAN FRANCISCO — Pacific Lumber Co., a financially troubled titan of California's timber industry, is offering to sell more than a quarter of its 220,000 acres of land in Humboldt County, a spokesman said Friday.

The company informed federal securities regulators that it was marketing ranch lands, recreational areas and timberlands that did not figure in its core business as a major redwood lumber producer. Officials said they hoped to generate additional cash flow for the company, which has struggled to pay interest on its long-term debt and has threatened to file for bankruptcy protection for more than a year.

"We are not liquidating the company or its timberland," President Robert Manne assured employees in a letter. "This is not a massive sell-off ... but rather part of our larger restructuring efforts."

But analysts and critics said the sale of lands owned by Pacific Lumber and its subsidiary, Scotia Pacific Co., was the latest signal that the company needed to be seriously revamped by its parent company, Maxxam Inc.

Pacific Lumber, founded more than 140 years ago, has its own mill town and the largest privately owned groves of ancient redwoods. The Scotia, Calif., company was purchased in 1986 by Houston-based Maxxam, headed by financier Charles Hurwitz.

Since then, the company has battled with regulators and environmentalists who allege that excessive timber cutting has rapidly depleted redwood forests, silted streams and harmed wildlife habitat.

Seven years ago, the state and federal government made a $480-million deal to acquire 7,500 acres of Pacific Lumber's oldest trees to create the Headwaters Preserve. The company also agreed to limit logging on its remaining lands.

But executives said last year that the terms and restrictions imposed by regulators had cost the company millions of dollars and forced it to close mills and slash its workforce.

Executives said the company had not been able to cut enough timber to turn a profit and had strained to make payments on more than $700 million in bond financing secured by Scotia Pacific's timber holdings.

In recent weeks, reports circulated in financial and real estate circles that the company was preparing to sell off some of its land. Spokesman Chuck Center confirmed Friday that the company was offering about 60,000 acres for sale.

Although he did not have detailed information, Center said many of the parcels were ranchland or timberland with Douglas fir, rather than prized redwood groves.

"We do not want to sell off our core redwood lands," he said. "They're the lifeblood of our company."

Pacific Lumber contends that restrictions and permit problems at state water agencies have choked off its timber harvesting plans and harmed it financially. Catherine Kuhlman, executive officer of the North Coast Regional Water Quality Control Board, said the buyers of the lands would remain subject to water quality and wildlife protection rules.

Mark Lovelace of the Humboldt Watershed Council found out about the sale and publicized it before the company reported it to the Securities and Exchange Commission on Friday. He said the size of the sale indicated that the company was liquidating significant assets.

A spokeswoman for the bondholders' trustee declined to comment on the sale.

Matt Wirz, an editor at Debtwire, a distressed bond news service, said the land sale followed Pacific Lumber's use of loans and other methods to scrape together interest payments that it could not generate through timber operations.

"It's kind of a procrastination strategy," he said. "There's no doubt in anyone's mind that the company has to restructure itself.... They can't cut enough trees to fund the bonds."

Timber companies, developers and conservation groups are potential buyers, depending on the location, resources, price and accessibility.

"We, of course, would be interested in timberland adjacent to ours," said Jackie Deuschle-Miller, spokeswoman for Seattle-based Green Diamond Resources Co., which has about 400 acres of timber in Humboldt and two other counties.

Jim Redd, co-owner of Four Star Realty in Eureka, said some properties closest to cities would be developable but most probably would remain timberlands because of county zoning.

"I know there's a fear among some people that Palco's going to subdivide and run, but I don't believe that's the case," he said referring to Pacific Lumber.

Katherine Anderton, executive director of Save the Redwoods League in San Francisco, noted that Pacific Lumber's lands adjoin some of the state's most important redwood parks.

Anderton said state funds for such acquisitions were almost depleted but her organization was circulating a proposed $5.3-billion bond measure that could help provide funding for water quality and park improvements.

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