Crown Pacific timber co. seeks bankruptcy - Trillium, Indian tribes are negotiating to buy firm's timberlands in Whatcom, Skagit, Snohomish counties

Ericka Pizzillo, The Bellingham Herald

7/1/03

Crown Pacific Partners L.P., which owns 51,000 acres of timberland in Whatcom County, filed for Chapter 11 bankruptcy protection Monday after months of seeking to make new agreements with its creditors on its more than $500 million in debts.

The Portland, Ore.-based company, which owns a total of 525,000 acres of timberlands throughout Oregon and Washington, does not expect changes in its operations as it works to reorganize its debts, said John Mangan, company spokesman. No layoffs are planned for the company's 700 employees, including the company's lumber mills at Marysville and Port Angeles.

But at least a portion of its land could be sold.

Bellingham's Trillium Corp. is currently negotiating with Crown Pacific to buy some or all of the company's Hamilton division - Crown's land holdings in Whatcom, Skagit and Snohomish counties, said David Syre, Trillium's chairman and chief executive officer.

There are about 146,000 acres of timberland in the Hamilton division.

Trillium is working on the negotiations with several Indian tribes, which Syre would not name. But Syre said Trillium is mostly interested in the Whatcom County land and the tribes are interested in the land south of Bellingham.

A first offer made for the land was rejected by Crown Pacific, Syre said. The companies are continuing negotiations.

Syre said a confidentiality agreement with Crown Pacific prohibited him from further discussing the details of the negotiations or the agreement between Trillium and the tribes to work together. But he said any deal could lead to future land exchanges with the state to consolidate timberlands and allow for better management of timber cutting.

Crown Pacific bought 65,000 acres of timberlands from Trillium in 1997 for $153 million at a time when prices for lumber were considered strong.

Falling prices

Crown Pacific was hurt by a debt load that included a number of property acquisitions during the late 1990s, including the purchase from Trillium. The company had 10 quarters of financial losses, including a $16.5 million loss during the first quarter of this year, following a $59 million loss in 2002.

The timber industry has been beset by difficult times since timber prices began a long, slow decline during the past three years, said Paul Latta, an analyst for McAdams Wright Ragen brokerage firm in Seattle.

Lumber prices boomed in the mid-1990s when much of federal timberland in the Northwest was closed off to logging because of dwindling numbers of spotted owls in the forests.

But over time, lumber from other parts of the world, including New Zealand, Chile and Siberia, started to fill the worldwide demand, causing the value of lumber to decline.

At the same time, the United States' tariff dispute with Canada over softwood lumber exports, mostly from British Columbia, was causing volatility in logging prices. When a permanent tariff was imposed, B.C. lumber companies continued to cut instead of reducing B.C. logging as the U.S. government expected, Latta said.

The increased supply of lumber continued to weaken the price.

Such lumber price declines puts more financial pressure on companies like Crown Pacific because their timberland investments are worth less now, increasing the percentage of debt compared to their lessening assets.

"In the most simplistic explanation, they had too much debt at the wrong time," Latta said.

Other large lumber companies are also facing financial difficulty now, but none appear to be on the verge of bankruptcy, Latta said.

The price declines have meant less logging by Crown Pacific as it attempts to hold on to lumber until its value rises, Mangan said.

The bankruptcy filing is not expected to change the rate of logging on the company's land in Northwest Washington, Mangan said.

Filing in Phoenix

Crown Pacific announced in late spring that it was unable to pay more than $13 million in interest as it came due in late May and early June. But its lenders signed a forbearance agreement that gave the company through June to come up with a solution. That forbearance agreement expired Monday.

The filing was made Monday in U.S. District bankruptcy court in Phoenix, where the company's lumber-supply company is based.

The company's share price closed at 18 cents Monday afternoon, a decline of 40 percent from the previous day. The company's shares were worth $4.85 at the end of last June.

Reach Ericka Pizzillo at ericka.pizzillo@bellinghamherald.com or call 715-2266. The Associated Press contributed to this report.