Daniel Mintz usually gets his facts straight, and more often than not he gets the dynamite quotes and the best articles on any given topic. This one is particularly interesting because it reveals Paul Gallegos' pre-determination that Pl is guilty, and his stop-at-nothing approach to dealing with the case.
By Daniel Mintz Press Staff Writer
McKinleyville Press
The Pacific Lumber Company's financial strife has peaked with bankruptcy, and as the company names regulatory pressure as the reason why, its critics call attention to ongoing debt and past forecasts of liquidation.
The company's Thursday, Jan. 18, bankruptcy filing puts its insolvency in black and white. Now Palco (Pacific Lumber's preferred abbreviation) will be temporarily shielded from those it owes money to while it restructures. And it owes a lot of money, and has ever since it was taken over in the mid-1980s by the Texas-based Maxxam Corporation and its vilified owner, Charles Hurwitz.
With a continuous debt load of about $750 million, Palco's timberland subsidiary, Scotia Pacific, has struggled to meet interest payments to timber note holders. Recent years have been the toughest, with the company closing multiple mills and borrowing money off future timber sales to make the bi-annual debt payments.
Now that bankruptcy's been filed, the company and the community arrive at differing takes on it - Palco points at "regulatory limitations" as a financial crimp while those who have warned of economic collapse for years continue to portray Maxxam as a forest grabbing bankruptcy-maker - including the county's District Attorney, whose fraud lawsuit against the company nears an appeal determination.
D.A.: Debt serviced by fraud
Interviewed not long after hearing of the bankruptcy, District Attorney Paul Gallegos said he isn't surprised. "That's what we're saying in our lawsuit - their whole plan is to carry out an unsustainable harvest rate to fund that debt," he continued.
The lawsuit was dismissed due to legal conditions unrelated to the D.A.'s allegation that Palco knowingly submitted false information during the 1998 Headwaters Deal process. Gallegos' appeal of the dismissal is being considered by the state's Supreme Court. He thinks the company's huge and lingering debt pressured it to push for higher cutting rates - and to commit fraud.
"There was one thing on their minds and that was having a set harvest rate - they were going to make sure they got it and that was the reason they submitted false information," said Gallegos.
Pacific Lumber and the state agencies that dealt with it have said that the wrong data represents a mistake that didn't have much bearing on regulatory decisions. And in a press statement released a day after the bankruptcy filing, Palco cites harvesting limits set by state and regional water quality control boards as an economic crippler.
Reduced harvests in the Elk River and Freshwater watersheds have been imposed due to flooding and sedimentation concerns. The company has filed a lawsuit against the state, alleging that the permit conditions are a violation of the Headwaters Deal.
"The failure of the state to live up to the terms of the Headwaters Agreement has prevented Pacific Lumber and (Scotia Pacific) from remaining economically viable without restructuring," Palco's press release stated.
What that restructuring will consist of is also being debated.
'Breathing room'
Andrea Arnot, Palco's communications director, emphasized that filing for bankruptcy doesn't mean the company is about to fold. "This is a way for us to get breathing room and work out financial issues without pressure from our creditors and our lenders," she said. "We are not going out of business, that is not what we intend to do - Chapter 11 bankruptcy will allow us to preserve and strengthen our business to best meet our financial obligations."
Palco's financial strength has been increasingly drained. In 2005, the company came close to bankruptcy and proposed giving its timber note holders a 90 percent majority ownership share in exchange for debt relief. But Palco achieved debt service through borrowing.
Asked about the economic effects of bloated debt, Arnot said she couldn't "speculate" about it, and re-emphasized the impacts of water board actions and the Headwaters Deal. She repeated the press release's description of the Headwaters Deal as the trigger for "the most stringent environmental restrictions ever placed on timber harvesting."
The company is about restructure itself, she added, but the way it will be done hasn't been decided. "We aren't there yet," Arnot said. "We filed for bankruptcy last night and we won't come up with a plan overnight."
But Darryl Cherney, one of the lead players in motivating the Headwaters Deal, said he knows exactly what will happen next. "Charles Hurwitz is going to part out Pacific Lumber like a stolen car," he said. "As I've said repeatedly, Charles Hurwitz does not know how to build companies, he only knows how to rip them apart and bankruptcy was always part of his plan."
The regulations connected to the Headwaters agreement followed double- and triple-cutting episodes that led to Forest Practice Act violations and revocation of Palco's harvesting license. Cherney pointed out that the company's debt remained high even when cutting was multiplied.
"People would say (Hurwitz) is cutting down trees to pay off the debt and I always disagreed," he said. "He's cutting down trees to line his pockets."
Mention of the company's litigation against the state has been included in Palco's recent financial filings to the Securities Exchange Commission. Gallegos thinks Palco's management needs to take responsibility for the economic shortfall. "They've blamed it on everyone except themselves from day one," he said.
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