Letters + Opinion » The Town Dandy

The Cram-down



It's now been just over a year since the Pacific Lumber Co. and its various subsidiaries declared bankruptcy in a backwater courthouse in Corpus Christi, Texas. The past 12 months have mostly kept us both appalled and entertained. It was thrilling to watch the high-flying legal stuntwork deployed by the team over at Palco's parent corporation, Maxxam, Inc. Maxxam main man Charles Hurwitz turned out to be just as breathtakingly malevolent in the courtroom as he is in business and politics, and the result was a bankruptcy case that moved from audacity to audacity almost without pause.

Lately the sense has been that springtime is about to descend upon Corpus Christi, and by extension onto Humboldt County, where the future of the Pacific Lumber Co. is of immense moment. There is a spreading feeling of joy and relief — a feeling that after 22 dark years the vitally important company will finally be wrested from Hurwitz's grasping hands and given to someone a little less evil. This buoyancy even made it to the editorial page of the Sunday San Francisco Chronicle, where the paper's high priests got a little bit giddy at the prospect of a brighter, more sustainable, more cheerful Palco.

Well maybe, maybe. We concede that things look brighter than they have done for some time. At the same time, though, it's hard not to feel like we're re-watching that scene from The Lord of the Rings — the victorious wizard pauses on the bridge to give a smiling thumbs-up to his crew; meanwhile, a tentacle of the vanquished monster rises unseen and plucks him into the abyss. For our part, we've long suspected that Hurwitz — crafty old bastard that he is — would keep one final move in reserve. Now we think we might know what it is.

Let's take a look at the state of play. Right now, various players have filed their plans for taking the company out of bankruptcy and moving it forward. There are three main plans on the table — one from Maxxam, one from Marathon Capital and Mendocino Redwoods, and one from the high finance Wall Street firms that own around $730 million in Pacific Lumber bonds. Maxxam's plan is fairly simple. It would sell some of its most ecologically valuable land to the government at astronomical prices, and it would develop a bunch more of its land at equally astronomical prices. The creditors would be paid off, mostly, and everything would go on as before, with Maxxam still in the driver's seat.

It's the second two options that set the San Francisco Chronicle editorial board's mouth to watering, and which have local Palco-watchers of all stripes feeling hopeful. Marathon Capital, which loaned a bunch of money to Palco and took the town of Scotia as collateral, proposes to take over the company and run it in conjunction with Mendocino Redwoods, a much more eco-friendly company than Maxxam. In contrast, the bondholders propose to sell the company at auction, which doesn't sound too good except for a catch: The Nature Conservancy has put together a coalition that would keep the great majority of Palco's 200,000-odd acres in low-level timber production, conserving the rest. This coalition would be prepared to bid in the event an auction came to pass.

Everyone thinks Maxxam's plan is daffy, not least because it's counting on generating some $400 million in profits from real estate development at a time when the real estate market is deader than dead. The judge in the bankruptcy case could easily disqualify the plan on these grounds alone. So it seems to come down to one of the two nice-sounding plans. And that sounds nice.

But what no one talks about is that Maxxam has filed a second plan — what it calls "the alternative plans" (one for Palco, one for sister company Scotia Pacific). These alternative plans are much starker, and it seems that Maxxam is throwing them out there in the belief that squabbling amongst Marathon and the bondholders will prevent them from coming to accord. Under the "alternative plans," everyone gets something. Marathon takes the town of Scotia and the mill. The bondholders get most of the forest. But Maxxam walks away with the 6,600 acres it calls "The Ancient Forests" — the most mature, highest value stands in the company's stock.

What would it do with those stands? Perhaps it would continue to try to sell them to the government at highly inflated costs, leaving Hurwitz with one final payday. Perhaps it would simply log them, or threaten to. Though the assumption is that the stands are protected through the Headwaters Agreement, Palco argues in its paperwork with the court that it can do all kinds of stuff to them: "road use, upgrading, and construction; blasting; drilling and mining; hunting; thinning; timber removal; and related land-use activities."

It would appear that Hurwitz, here, is counting on what is known in bankruptcy court as a "cram-down." Generally, recovery plans are voted upon according to a complex formula. Most everyone — owners, various classes of creditors — has to agree to a certain plan. But when no agreement is reached, the judge has the ability to "cram" a plan through, over the objections of the dissenters, if certain conditions written into the bankruptcy code are met. Maxxam's bankruptcy filings note that their primary plan is, alas, not crammable. So unless everyone agrees to it — never happen — it is dead. However, the company believes that its alternative plans are eminently crammable. If the judge agrees — and if Marathon and the bondholders unite over a single, opposition plan — Maxxam's "alternative plans" aren't going to be alternative much longer.

It looks likethe county is undergoing one of its periodic outbreaks of democracy. As everyone knows by now, Supervisor John Woolley, who has represented the Arcata area on the Board of Supervisors since 1996, announced on Monday that he would not be seeking a fourth term in office. Woolley told the Times-Standard that he wanted to narrow his focus, and looked forward to delving deep into a few important policy issues, such as global warming and the county general plan update.

The surprise announcement instantly created a vacuum in the left-leaning Third Supervisorial District, where Woolley had hitherto been an unbeatable force of nature. But "surprise announcement" may not be the best phrase for it, because the rush to fill the void has apparently been underway for some time. And now it looks like there will likely be a bona fide election up Arcata way come June 3.

At least three big-name candidates have sprung up in the days following the Woolley announcement, though at the moment of this writing they're all in the "seriously considering it" phase of their pre-candidacies. Each of them have natural constituencies, and if they all go for it the Arcata progressive community is going to be spoiled for choice.

First out of the gate was Humboldt Bay District Commissioner Mike Wilson, who despite insisting that he is still only mulling a run, apparently mulled it enough to register the websites "mikeforsupervisor.org" and "wilsonforsupervisor.com." (Alternative transportation activist Aaron Antrim — a known Wilson partisan — registered the names on Sunday, the day before Woolley made his announcement.) The 39-year-old Wilson has served on the Bay District for just over two years, most of the time serving as the sole voice of dissent on matters relating to the mass industrialization of Humboldt Bay.

Reached Tuesday, former Arcata City Councilmember Elizabeth Conner, director of the Humboldt Bay Housing Development Corporation, confirmed that she, too, was considering a run for Woolley's position. She said that she had already received offers of support and assistance, but was still deciding whether or not a seat on the Board of Supervisors would be the best place to concentrate her efforts. Conner resigned from the Arcata City Council so as to avoid conflicts of interests pertaining to her day job, but she said that she would resign her position if elected to the board. She said she'd have a decision by the end of the week.

Finally, timber activist Mark Lovelace, also widely known as a smart growth advocate, said that he has been encouraged to run for the position. "It's something that I've considered," Lovelace said Tuesday. "And let's just say that I haven't said no."

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