From The Oregonian, April 1, 2003, pD1 (Business)

$59 million loss adds to turmoil at Crown
The Portland-based timber company says it will have to seek debt
protection if ongoing negotiations with lenders fail

By JEFF MANNING, The Oregonian
Crown Pacific Partners lost another $59.1 million in 2002, the
company disclosed Monday, worsening an already difficult financial
bind.
The Portland-based timber operation is attempting to negotiate a
compromise with its lenders over the repayment of its massive debt
load, which now exceeds $539 million, the company stated in its annual
financial report released Monday. Without a successful debt
restructuring, Crown's survival is in question.
"The partnership has suffered recurring losses from operations, has
significant debt service requirements and restrictive debt covenants
that raise substantial doubt about its ability to continue as a going
concern," said PricewaterhouseCoopers, Crown's auditor, in its opinion
letter included in a report.
Crown warned four times in the report that it could be forced to seek
protection from creditors if it's unable to reach agreement with
lenders.
Three consecutive years of low timber and lumber prices have taken a
signficant toll on the forest products industry. Few have been as
affected as Crown, which borrowed heavily during the 1990s to buy more
than a billion acres of timberland.
Crown finished 2002 with total revenue of $482.2 million, an 18.4
decrease from the prior year, when it lost $53.8 million on total
revenue of $593.3 million.
Crown's losses and concrns over its future have driven its stock down
more than 97 percent in the past 12 months from $6.30 to 15 cents at
Monday's close.
Further complicating Crown's debt negotiations is a dispute over
whether it disclosed to its lenders the existence of a pre-existing
lien on 15,000 acres of timberland in Whatcom County in northern
Washington. Bank officials "have asserted that the existence of this
lien was not properly disclosed to them," Crown said in its annual
report. As a result, the banks contend that Crown is in technical
default of its loan agreements.
The controversy threatens to further reduce Crown's ability to borrow
additional funds. The banks "have indicated that they will not fund
any new borrowings under our working capital facility," Crown
reported. "As a result, our liquidity has been significantly reduced."
Roger Krage, Crown's general counsel and senior vice president of
corporate affairs, downplayed the dispute, calling it a technical
oversight. Crown properly informed its lenders of the lien when it was
originated in 1997, he said.
The lien is held by Fox Glove LP, a subsidiary of Trillium, a timber
company based in Bellingham, Wash. In 1997, Crown bought a plot of
Whatcom County timberland from Trillium. Crown gave Fox Glove an
option to buy back 15,000 acres of that land in 2012.
As part of the buyback option, Fox Glove was granted a lien on the
property, the lenders argue.
Krage said Crown only learned March 24 that the lenders considered
the Fox Glove lien an issue. He predicted the dispute will be resolved
quickly.
"The banks had institutional knowledge of this," Krage said. "In the
context of the big restructuring this doesn't matter at all."

Posted by
Daniel B. Wheeler
www.oregonwhitetruffles.com