Palco's bad deal is everyone's bad deal

The Times-Standard

February 13, 2005

The Pacific Lumber Co. has on many occasions warned courts, critics and boards that it rests on the verge of bankruptcy if things don't go its way. In this latest round, it offers what seems to be its most desperate cry.

Everyone is taking the company seriously this time. Employees are worried. Businesses are worried. Contractors are worried. Bondholders are worried. Standard and Poors is worried enough to put Palco's $750 million worth of timber notes on watch for another decline in rating.

And lots of people are worried that Palco's intonations that it might slip out from under the provisions of the Headwaters Forest agreement might be for real. Indeed, it already has skirted these requirements in some ways. When the Environmental Protection Information Center finally won its case against Palco's 100-year plan to cut timber, the logging didn't come to a grinding halt. Palco submitted plans under little-known state rules, and has been cutting in some areas without such a plan since.

Federal provisions, however, remain in place.

The key problem the company faces is its massive debt. Like any company with a finite resource to make its products from, there is a level of debt it just can't sustain. The money Maxxam Inc.'s Charles Hurwitz made from the 1999 deal to purchase 7,400 acres of Headwaters Forest is awfully difficult to track. But it does not appear that the near half-billion went to pay down a significant portion of the debt he incurred when he bought the operation in 1985, when it was poorly protected and undervalued.

The argument Palco made to Gov. Arnold Schwarzenegger seems to have been "We need to log and we need to log now." That's to pay the $28 million payment due on its timber notes in July.

But should a company's financial position dictate the regulatory process? Should the North Coast Regional Water Quality Control Board rubber stamp harvest plans because the company is about to go broke? Public agencies should be most accountable to the people, even if they should consider the interests of industry.

Jobs are at stake, maybe several hundred. So, too, are the contributions the company makes to the county and numerous charitable efforts, contributions often overshadowed by the Palco controversy.

Our county needs those jobs. But those who believe that all would be fine if environmentalists and regulators just got out of the way are ignoring the larger truth that centers on money, particularly the huge, ongoing debt the company is coping with.

A bad business deal made by Hurwitz should not lead to bad regulatory oversight. The water board is putting all its resources into solving both the needs of the people and the needs of the company, and it should consider to do so -- in that order.