Pacific Lumber Wants Bondholders To Forgo $10.5M In Fees
By Patrick Fitzgerald
Dow Jones Newswires
June 16, 2008
Pacific Lumber Co. and its new owners want the company's bondholders to give
up more than $10 million in fees and expenses racked up by their lawyers in the
company's bankruptcy case, the latest shot in a long-running dispute between
the timber company and its investors.
The company's new owners - hedge fund Marathon Asset Management and lumber
company Mendocino Redwood Co. - said in papers filed Friday in U.S. Bankruptcy
Court in Corpus Christi, Texas, that Bank of New York, which represents the
bondholders, must cough up the $5.5 million its been paid as reimbursement for
its legal fees and expenses.
The bank, according Marathon and Mendocino, must also forgo some $5 million
in unpaid legal fees and expenses.
The bondholders say that $20 million of their cash collateral - cash pledged
as collateral securing the bonds - has been spent to pay advisers for Pacific
Lumber subsidiary Scotia Pacific.
(This article also appears in Daily Bankruptcy Review, a publication from Dow
Jones & Co.)
Marathon and Mendocino have been battling bondholders for months over control
of Pacific Lumber's assets, including more than 200,000 acres of timberlands in
Humboldt County, Calif.
Earlier this month, a bankruptcy judge ruled that the Marathon-Mendocino plan
should be confirmed with some modifications. The plan called for bondholders to
be paid $530 million in cash, well below the $900 million they were demanding.
In his ruling, Judge Richard Schmidt said that based on the value of the
timberlands - the bondholders' collateral - Marathon and Mendocino only had to
pay bondholders $510 million. The bondholders had fought to auction off the
timberlands and say they will appeal.
But the bondholders say they are owed additional money, more than $300
million, because they say the value of their collateral dropped during the
bankruptcy. That claim has put the Marathon-Mendocino plan in doubt.
Since the bondholders are undersecured - meaning their claim is more than the
value of the timberlands - Pacific Lumber's new owners say, the bank must give
up any cash Pacific Lumber paid to reimburse them for their legal fees. Under
bankruptcy law, creditors whose claims are undersecured aren't entitled to
receive reimbursement of their legal fees and expenses.
Schmidt scheduled a June 30 hearing on the claim, which would be paid on top
of the $510 million they would receive under the Marathon-Mendocino plan.
Pacific Lumber, based in Humboldt County, Calif., filed for Chapter 11
bankruptcy protection in January 2007. The company, which has been logging in
Northern California for more than 130 years, had backed the Marathon-Mendocino
plan. Houston conglomerate Maxxam Inc. (MXM) acquired the company in 1986.
Pacific Lumber abandoned its own Chapter 11 proposal midway through the
bankruptcy contest and threw its weight behind Marathon and Mendocino.
Mendocino, owned primarily by the family that founded the Gap retail chain,
operates a comparable forest in Mendocino County, Calif., just south of the
timberlands at issue in Pacific Lumber's case.
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