Thursday, March 22, 2007

The Fight Over Control Of Scopac Lands (revised)

[meadowland not included in pie chart, definitions of forest type categories at bottom of article.]

Monetary Value of the Land
With almost half of PL subsidiary Scopacs timberland having trees less than 11 inches wide at breast height and only 7% of the mature forest available for logging, it appears that the monetary value of the trees on PL/Scopac land is less than the $750 million debt owed to the Scopac Noteholders. This would seem to indicate that in the bankruptcy proceedings that Maxxam will lose control of Scopac land holdings.

However, if PL’s Habitat Conservation Plan (HCP) was altered or eliminated the land could theoretically be sold off at a much higher price, allowing Maxxam to stay in control. A challenge to the HCP would start a big legal battle between Maxxam and the state of California which I examine in the next section. Altering or eliminating the HCP could reduce survey requirements, potentially loosen logging restrictions and open up the possibility that zoning could be changed from TPZ (timber production zone) to residential zoning. This would make the land more appealing to other timber companies and real estate developers.

Will Maxxam Challenge the HCP Regulations?
In order to increase the value of the land the Habitat Conservation Plan (which bans zoning change on most of Scopac land) would have to be altered or eliminated. The land is currently zoned TPZ (timber production zone) and would need to be changed to residential zoning. I don’t think anyone disagrees that the sale price of the land would be higher if the HCP was removed. However some argue that the current barriers to subdivision and zoning change make this an unlikely path for Maxxam to take.

So far Maxxam and PL have made no overt attempt to challenge the HCP but they don’t ruled it out as a possibilty either. Their lawsuit recently filed against the state of California alleges that the state has not fulfilled their part of the Headwaters agreement (which includes the HCP) and that is what led to PL’s current financial troubles.

Pacific Lumber spokeswoman Andrea Arnot said the company to date has not asked the bankruptcy court for any changes to the Headwaters agreement, which she called the "most stringent environmental standards" ever placed on timber harvesting.
When asked whether the company might seek such alterations to the deal at some point during bankruptcy proceedings, Arnot said, "You're asking me to speculate how a legal proceeding will go. I can't speculate."- SF Chronicle 1-28-07

It doesn’t seem strategically smart for Maxxam to openly challenge the HCP at this point because they can wait at least until the venue is set. A challenge at this point would only further galvanize opposition from environmentalists and California regulatory agencies.

California Government Says They Will Defend the HCP Regulations
The California Attorney Generals office and the secretary of the California Resources Agency have already stated that they will fight Maxxam if the corporation tries to challenge the HCP.

"We intend to be dogged and unyielding in our efforts to protect California's interests and hold (Pacific Lumber) to all of its obligations," Mike Chrisman, secretary of the state Resources Agency- SF Chron. 1-28-07

The Value of the Trees
As I previously wrote the judge will be making the final determination of the current value of Scopac timberland.

If the value is less than the debt owed then Maxxam loses control. The land would then theoretically be handed over by the court to Scopac Noteholders (as they have requested). Scopac is the land holding subsidiary of Pacific Lumber (aka Palco or PL) and employs surveyors and foresters that write the site specific logging plans. The Noteholders are mainly banks and insurance companies that own “Timber Notes”. These notes represent debt that is collateralized by the trees on Scopac land.

So what is the value of Scopac’s timberland compared to the $750 million of debt? Mark Lovelace of the Humboldt Watershed Council has probably said it the best;

"Quite literally, if the company cut every tree on their land, it would not generate enough cash to pay off the debt. No amount of harvest could save the company.”

If the land value is to be judged by timber value then it would go to reason that Hurwitz/Maxxam will lose control.

Venue Battle
The opening legal battle in the bankruptcy is over the location of the bankruptcy proceedings. Both sides want the trial in their home court but so far Maxxam has the upper hand. They opened the Scotia Development presence in Corpus Christi, Texas last June to establish a presence in the area before filing for bankruptcy. In doing so they essentially hand-picked the court and the judge. There is only one bankruptcy judge in that area, Judge Richard S. Schmidt.

The state of California and the Scopac Noteholders committee have both requested that the venue be moved to California on the grounds that that is where base of Pacific Lumber and Scopac operations are located. Judge Schmidt has stated in court that his only concern is whether or not Pacific Lumber met the letter of the law in filing in Corpus Christi.

Now the legal opposition to Maxxam/Pacific Lumber has to walk on eggshells around the topic of fairness so as not to insult the judge.

Noteholders Threaten to Sue
The Scopac Noteholders committee has said they will sue Maxxam and Scopac managers for fraud if the venue stays in Texas. They say that either Scopac is misrepresenting it’s place of business now as being based in Texas or it was misrepresenting it all along as being based in Scotia, Ca.

Some Research Findings On the Current Forest Conditions of Scopac Lands

A forest practice monitor recently compiled information from Pacific Lumbers own Timber Harvest Plan (THP) documents in order to try shedding some light on the amount and size of trees that are available for logging.

"I tried to get an idea of what the inventory might be based on the WHR (wildlife habitat relationship) tables in THPs that disclose the acreage of late seral forest (LSF) in each WAA (watershed assessment area). It also gives #s for hardwoods, non-timber, mid-successional forest and young forest."

"I found that about 17.5% of PL's land is in late seral, [regulations require] 10% be left unlogged... so something less than 7.5% (14,835 acres) is [harvestable] LSF. I assume that some portion of the mid-successional (36%, 71,207 acres) is also harvestable, but not very much of it.

About 45% of PLs forest is trees less than 11 in DBH and less than 20 yrs old." -Forest Practice Monitor

Forest Types As Defined By PL

Late Seral Forest: Areas with trees that average over 24 in DBH [diameter at breast height] and have begun developing a multi storied structure. It occurs in redwood stands as young as 40 years but is usually found in stands more than 50 years old. Late seral includes trees classified under the WHR system as late-successional types 5M, 5D and 6. [includes oldgrowth]

Mid Seral Forest: (Mid-Successional is not defined but I assume these are the same) Areas with trees 12-24 inches DBH. Stands are generally 20-50 years old and lack a shrub layer.

Young Forest: Areas with saplings between 1 and 11 in DBH stands are generally between 10-20 years old.

Forest Opening: Areas with grass brush and conifer seedlings and saplings up to 1 inch dbh. [clearcuts]

Non-Forest: Meadows and rocky area that do not support forest vegetation


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