S&P: Pacific Lumber still on watch

Standard & Poor's said its CCC+ corporate credit rating on Pacific Lumber Co. remains on CreditWatch negative, where it was placed on Jan. 26.

Pacific Lumber's wholly owned subsidiary Scotia Pacific Co. LLC received approval from the North Coast Regional Water Board on March 16 to log under additional timber harvest permits. Prior to this approval, the company was restricted by the Regional Water Board to 50% of the total harvest limit already approved by the California Department of Forestry.

S&P said the reduced logging at Scotia Pacific has caused a raw-material shortfall at Pacific Lumber, which in turn has almost totally eroded the company's liquidity and caused covenant violations under its revolving credit facility.

Pacific Lumber has obtained an extension through April 15 of a short-term waiver for covenant violations under its revolving credit facility. The company is working on improving its precarious liquidity position with a more permanent solution.

S&P said it believes Pacific Lumber can avoid filing for bankruptcy protection if it is successful in implementing a long-term solution to its covenant violations and liquidity crisis.

However MAXXAM Inc., Pacific Lumber's parent, filed its 2004 10K statement, which contained an auditor's opinion expressing substantial doubts about Pacific Lumber and Scotia Pacific's ability to continue as a going concern.

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