Pacific Lumber debtor Scotia Pacific looks to strike cash collateral motion, provide no-interest DIP

By Caroline Salls

Pittsburgh, March 5 - Pacific Lumber Co. debtor Scotia Pacific Co. LLC's informal committee of timber noteholders asked the U.S. Bankruptcy Court for the Southern District of Texas to strike Scotia Pacific's emergency cash collateral motion and offered to fund a debtor-in-possession facility that includes no interest, according to a Friday court filing.

According to the committee, Scotia Pacific's cash collateral motion included exhibits that contain confidential, inadmissible evidence of settlement negotiations.

The committee also said the cash collateral motion was filed only 2½ business days before the final hearing, and the motion raises entirely new arguments concerning indenture interpretation that must be asserted in an adversary proceeding to determine the validity and priority extent of a lien and "manufactures an emergency."

The committee said the motion "also threatens a priming DIP financing if the noteholder committee does not knuckle under."

"The noteholder committee proposes to cut through all of the false alarm emergencies and all of Scopac's finger pointing at the noteholder committee," the committee said in its motion.

In addition, the committee presented its DIP financing proposal that it said does not seek to prime lender Bank of America, only the timber noteholders.

Under the DIP proposal, the committee is agreeing to lend its members' 95% principal amount of outstanding timber notes share of proceeds from pre-bankruptcy collateral and in funds in an SAR account under a pre-approved 13-week budget.

Scotia Pacific may also borrow funds necessary to pay expenses to preserve its assets from sudden and catastrophic loss and to preserve life and property in the event of a fire, environmental incident or other extraordinary event.

The DIP proposal does not include any commitment fees, administrative fees, unused balance fees or early termination fees, according to the motion.

"The interest rate on the DIP financing proposal is precisely 0%," the committee said in the motion.

If the parties to the DIP agreement are to agree on an additional budget beyond the initial 13-week budget, then the DIP will expire when the initial budget ends.

The DIP financing must be repaid in full in cash on the effective date of a plan of reorganization.

The DIP proposal has not been previously presented to Scotia Pacific because the committee said it does not trust the company to maintain the confidentiality of settlement proposals.

Pacific Lumber and Scotia Pacific are Scotia, Calif.-based subsidiaries of Maxxam Inc. Pacific Lumber's Chapter 11 case number is 07-20027.

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