Scotia Pacific noteholders agree restructuring progress is "insufficient," call for company to go independent

New York, Sept. 27 - Noteholders of Scotia Pacific Co. LLC said they agreed with the company that progress on restructuring its debt has been "insufficient" and said the solution to the problems is for Scotia Pacific to become independent.

The comments, made by the ad hoc committee of holders of Scotia Pacific's timber collateralized notes, came in response to an announcement from the company Monday that it has stopped paying the committee's fees. The company said there had been "insufficient progress" on talks to restructure its timber collateralized notes and also observed that the group represented holders of less than 15% of the securities.

Scotia Pacific ceased paying the fees of the committee's counsel, Bingham McCutchen LLP, effective Friday and will stop paying financial adviser Houlihan Lokey Howard & Zukin on Oct. 23.

In its response, the committee, which says it represents holders of 80% of the timber collateralized notes, said Scotia Pacific "needs to become an independent timber company with the ability to make its own harvesting decisions and to sell its forest products in the open market, rather than exclusively to Palco [Pacific Lumber Co., its parent].

"The noteholders also believe that Scopac [Scotia Pacific] should have an independent board of directors and should interact directly with regulatory authorities and conservation groups."

The company's decision to end discussions just reinforces the committee's view that Scotia Pacific should be independent, added Evan Flaschen of Bingham McCutchen in a news release.

"Scopac's redwood forests are an important resource and the noteholders intend to pursue a more responsible timber harvesting and reforestation program that is sustainable over the long term," Flaschen added.

Doubt arose about the company's ability to make timely payments on the notes early in the year, and it began looking at a restructuring in April.

A default on the July coupon was avoided thanks to a pre-payment from parent Pacific Lumber Co.

On Aug. 1, Scotia Pacific announced it had offered 90% of its equity and $300 million of new senior secured notes to be issued in a Chapter 11 restructuring of the timber collateralized notes.

Houston-based Maxxam Inc., a natural resources and real estate company, is parent of both Scotia Pacific and Pacific Lumber. Scotia Pacific is based in Scotia, Calif.

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