Dec. 14, 2007, 4:43PM
Pacific Lumber Bondholders Denied Bid
WASHINGTON — A federal appeals court has shot down a bid by a group of Pacific Lumber Co. bondholders to split off a unit from the company's Chapter 11 case so they could try to seize 200,000 acres of timberland in Northern California.
The 5th U.S. Circuit Court of Appeals Thursday said Pacific Lumber's Scotia Pacific unit doesn't meet the Bankruptcy Code's definition of a "single-asset real estate company" because it conducts "substantial" business other than the operation of real estate.
The court's decision, which affirms an April ruling from the U.S. Bankruptcy Court in Corpus Christi, Texas, means Scotia Pacific, or Scopac, can remain part of Pacific Lumber's Chapter 11 case and won't be subject to a shorter bankruptcy timeline.
Pacific Lumber, based in Scotia, Calif., created Scopac in 1998 as a standalone entity to issue $867.2 million in bonds. Pacific Lumber also transferred 210,000 acres of timberlands located in Humboldt County, Calif., to Scopac as collateral for the bonds. Both companies are subsidiaries of Houston-based conglomerate Maxxam Inc., which is owned by Texas tycoon Charles E. Hurwitz.
The bondholders had argued that Scopac was a single-asset real estate company, which would have put its Chapter 11 case on a fast-track to emergence. Bankruptcy law treats companies that use real estate to operate a business differently than those that use property simply for income.
The bondholders' group _ over a dozen hedge funds and Wall Street investment banks owed more than $700 million _ had sought single-asset status to gain leverage in negotiations with the company. A lawyer for the group had said the bondholders were interested in taking over the California timberlands.
The appeals court, however, said Scotia Pacific performs its business on the real estate for the purpose of selling timber _ not the underlying real estate.
"We agree with the bankruptcy court's holding that Scopac conducts substantial business other than operating the real property and activities incidental thereto," the court said. "Scopac's timberland is clearly more than a passive investment."
The court said categorizing Scotia Pacific as a single-asset debtor would "sweep broadly and require us to include such entities as owners of land or mineral interests who operate sophisticated businesses such as mining, oil and gas drilling, and large commercial farms simply by virtue of the debtor owning the land."
Pacific Lumber, which has been logging in Northern California for more than 130 years, filed for Chapter 11 protection in January along with Scotia Pacific and four other Maxxam-owned timber businesses after failing to make a $27 million interest payment to bondholders.
By MARIE BEAUDETTE
© 2007 The Associated Press
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