Charles Hurwitz Strikes Again

By Judi Bari - Anderson Valley Advertiser, February 13, 1993

Charles Hurwitz, the King of Sleaze, is about to pull another fast one. After six years of looting Pacific Lumber, he has just filed a plan to refinance his junk bonds by splitting the remains of the company into two new companies, Pacific Lumber and Scotia Pacific, and borrowing on each of them. The new loans witch total $579 million, and will be paid off at the expense of both the forest and timber community of Humboldt County. And to show that Hurwitz has absolutely no shame, making an obscenely rich man obscenely richer.

The way it works is this. The new Pacific Lumber will keep the most valuable assets of the old company - 8,000 acres of old-growth redwood including Headwaters Forest, the sawmills, the cogeneration plant, and the town of Scotia. Charles Hurwitz himself will be Chairman of the Board, replacing John Sidel, who has resigned.

Split off from Pacific Lumber will be the new Scotia Pacific Holding Company. Scotia Pacific gets the leftovers - 179,000 acres of cut-over land, featuring mostly young growth trees with some residual old growth and decent second growth mixed in. Although Scotia Pacific has by far the larger acreage, it has the lower valued timberlands. Scotia Pacific will be a subsidiary company of Pacific Lumber.

Against the assets of the new Pacific Lumber Company, Hurwitz will float a bond of $215 million. Although this bond is not directly tied to the sale of Headwaters Forest, it was definitely used as an enticement. Financiers have been promised that if the state or federal government purchases Headwaters, the money will first go towards paying off the debt. Since the sale price of Headwaters will likely be around $500 million and the debt is only $215 million, that will still leave a hefty profit margin for Hurwitz, as usual.

Against the assets of Scotia Pacific, Hurwitz will float a $364 million bond, to be paid off over a 20-year period. This bond will be guaranteed by cutting the timber at a projected rate of 5% of their acreage per year. They need to cut 3% per year just to service the debt, and the other 2% will go to operating costs and profit, which would go back to Scotia Pacific's parent company, Pacific Lumber, and once again find its way into Charles Hurwitz' pocket.

It doesn't take an Einstein to figure out if you cut 5% per year, you will have cut 100% in 20 years. In other words, Hurwitz' new financing plan is based on a rate of cut that would liquidate the forest in one generation. Of course, just because they're cutting every acre doesn't mean they're taking every tree. But the timber harvest plans being submitted up there now are averaging about 80% of the trees on each site. At that rate, in 20 years Humboldt County will look about like Mendocino looks now.

Of course there's no guarantee that Scotia Pacific will be around for 20 years. Charles Hurwitz is not in the business of cutting trees; he is in the business of raiding companies, breaking them up, and selling off the pieces. You may have noticed that, although Scotia Pacific is the less valuable of the two companies, it carries the larger debt. This looks like a perfect set-up for Hurwitz to sell off Scotia Pacific and get out of that portion of the debt. This way he could cash out the cut-over timberlands while holding on to the most valuable assets of Pacific Lumber- the old growth, the mills and the town. In the business world they call this "capturing the value of the investment." In the real world we call it "destroying the earth for private profit".

So basically, Hurwitz' new plan is to ransom the 3,000-acre Headwaters Forest to the government and liquidate everything else. Of course, saving the 2,000year old trees of Headwaters Forest is sure a lot better than cutting them, so I guess we should be glad for this accomplishment. But saving them in an isolated clump is not biologically viable, and could result in slow death for the forest Redwoods in particular do not do well in small clumps because they do not have deep tap roots and are susceptible to blow-down and what is called "the edge effect." Forest wildlife does not do well in isolated clumps either, since they lack a large enough gene pool for long-term reproduction. These are the reasons the Earth First! Headwaters Wilderness Proposal is for 98,000 acres, not just the 3,000 acres Hurwitz wants to sell.

And of course this latest Hurwitz get-rich scheme is not in the interest of the loggers either, since the jobs will be liquidated along with the trees. Look at Mendocino County, where L-P has laid off over half of their workforce in the last three years as they moonscaped our hills.

So what is the solution, other than despair? What really needs to happen is for the entire community, including both timber workers and environmentalists, to unite against this corporate marauder from Texas and demand local control. If the government has $500 million to spend on Headwaters Forest, that money should not go to Charles Hurwitz - it should go to providing jobs in forest restoration for displaced loggers, at wages comparable to the logging jobs. This wouldn't be an impossible demand. Charles Hurwitz doesn't really own Headwaters Forest; he stole it in a junk-bond scam, financed through a deal with Michael Milken that resulted in a $1.4 million taxpayer bailout. Hurwitz owes the taxpayers, and ceding Headwaters could pay that debt. In third world countries they call this a Debt For Nature swap. If it's good enough for Costa Rica, it's good enough for Humboldt.

Charles Hurwitz submitted his junk bond refinancing plan to the Securities Exchange Commission on December 28, and they have six weeks from then to rule it. But whether this latest scheme is approved or not, one thing is for sure. Charles Hurwitz is up to no good, and we will still be out there fighting Maxxam this year.