The Pacific Lumber Company and Subsidiaries File for Bankruptcy Protection

Corpus Christi, Texas, USA, 19 January 2007 -- /PRNewswire/ -- The Pacific Lumber Company and its subsidiaries filed for voluntary protection 18 January under Chapter 11 of the United States Bankruptcy Code in the federal bankruptcy court for the Southern District of Texas, Corpus Christi division.

The filing companies are The Pacific Lumber Company, Scotia Pacific Company LLC (Scopac), Britt Lumber Co., Inc., Scotia Development LLC, Salmon Creek LLC, and Scotia Inn Inc.

The companies said they are facing a liquidity crisis arising from regulatory limitations on timber harvest imposed on them, which have significantly reduced revenues while also increasing timber harvesting costs. As a result, the companies stated that annual timber harvest volumes and cash flows from operations will be substantially below the levels necessary to meet the companies' debt service obligations.

Together, the companies form an integrated forest products business that grows and harvests California redwood and Douglas fir trees. The resulting lumber is milled and sold by Pacific Lumber and Britt.

Integral to the companies' operations is the 1996 agreement with the federal government and the State of California, known as the historic Headwaters Agreement, which involved the sale to the federal and state governments of substantial old growth redwood timberlands of the companies. It aslo involved the implementation of comprehensive ongoing permits and approvals regarding harvesting activities on the companies' approximately 200,000 acres of remaining timberlands. The historic accord resulted in the most stringent environmental restrictions ever placed on timber harvesting.

In December 2006, Pacific Lumber and Scopac filed a lawsuit against the State of California to recover damages for breach of the Headwaters Agreement by the state. The lawsuit alleges that the state's actions have, among other things, restricted Scopac's ability to harvest its timberlands as agreed by the state in the Headwaters Agreement, in a manner that would assure regulatory certainty and economic viability for the companies and protect the interests of the people of California. The failure of the state to live up to the terms of the Headwaters Agreement has prevented Pacific Lumber and Scopac from remaining economically viable without restructuring.

These issues have led to declines in actual and expected harvest levels and cash flows, significant increases in the cost of logging operations, and increased costs related to timber harvest litigation, all of which have severely and negatively impacted the historical cash flows of Pacific Lumber and its subsidiaries.

Source: The Pacific Lumber Company