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Wednesday November 25, 2:17 pm Eastern Time License suspension could fell timber bond rating By Tim Ryan NEW YORK, Nov 25 (Reuters) - Credit ratings on securities backed by redwood timber harvests and issued by the Scotia Pacific Co. could be felled by Moody's Investors Service in the wake of the harvesting license suspension of its parent, Pacific Lumber Co. (Palco). Moody's Investors Service said the suspension of Palco's license earlier this month has spurred the rating agency to put $867 million in Timber Collateralized Notes issued by Scotia on review for possible downgrade. Palco -- a subsidiary of Houston, Texas-based MAXXAM Inc. (AMEX:MXM - news) -- had its license to harvest suspended by the California Department of Forestry and Fire Protection (CDF) on Nov. 10, citing continued violations of forest practice rules. Robert Irelan, vice president of public relations for MAXXAM, said the company is working to gain a timber operator's license for 1999. ``We're doing everything we know how to do to demonstrate our commitment to comply with the law,'' he said, including increasing the size of Palco's forest practices compliance team, initiating a thorough review of all procedures and a program of additional training. ``That said, there's no assurance the license will be issued,'' he added, ``that's up to the regulators.'' He also said the company hoped the issue would be resolved some time next month. Palco -- already beleaguered by stiff opposition from environmental groups -- allegedly engaged in practices such as driving heavy equipment through streams used by salmon, according to reports by the State News Service in California. However, the details of the violations were not relevant to the ratings review, which was spurred by the license suspension, said Everett Rutan, vice president and senior analyst at Moody's. ``The precise nature (of the violations) was not really important to us,'' he said. He also said opposition from the environmental groups was not an issue in the rating review. ``I don't think that's the main concern at the moment, though we did look at that going into the deal,'' he said. Rutan also said it is possible some environmental groups could seize on the suspension of Palco's license to bolster their fight against harvesting of the redwoods. Environmental opposition to Palco has ranged from blockades of logging roads to environmental group members perching in trees. Irelan could not say whether those protests have taken place in areas involving redwoods collateralized in the Scotia securities. The ratings review involves $160.7 million in 6.55 percent Class A-1 notes that currently have a rating of A1; $243.2 million of 7.11 percent Class A-2 notes rated A3; and $463.35 million of 7.71 percent Class A-3 notes rated Baa2. Moody's said it was concerned that harvesting could fall off in 1999 if Palco cannot win a new license from the CDF or find enough independent contractors to take up the slack. As much as 50 to 60 percent of harvesting is already done by contractors, Moody's said. Maintaining the harvest at minimum levels is key to Scotia's long-term ability to service the securities, Moody's said. The securities were privately placed in the asset-backed market in July and have a 30-year average life, but could be repaid sooner if the amount of trees harvested were to be increased. More Quotes and News: Maxxam Inc (AMEX:MXM - news) Related News Categories: options, US Market News Help Copyright © 1998 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. See our Important Disclaimers and Legal Information. Questions or Comments?
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