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State Officials Seeking to Swap Junk Bonds for Old-Growth Forest

March 28, 1991

SACRAMENTO, Calif. (AP) _ State and federal officials are negotiating to swap junk bonds from a collapsed thrift for the largest privately owned forest of ancient redwoods.

If the complex ″debt for nature″ trade goes through, the 2,900-acre Headwaters Forest in Humboldt County would be saved from logging and turned into an environmental preserve.

Government officials said Wednesday they hope to reach an agreement within two months with Pacific Lumber Co., which owns the forest.

Company officials have been very cooperative, said Michael Mantell, state undersecretary for resources.

″They have indicated an interest in selling at least a portion of Headwaters,″ said Tom Roth, an aide to Rep. Frank Riggs, who is taking part in the talks.

The state would need to acquire about $60 million in high-risk, high-yield bonds, which were held by Columbia Savings & Loan of Beverly Hills but obtained by the federal government when it seized the ailing thrift in January.

The bonds were issued by Pacific Lumber as part of its 1985 acquisition by Maxxam Inc., a Houston-based conglomerate. After acquiring the bonds from the federal government, the state would give them back to Pacific Lumber as partial payment for the forest. Pacific Lumber would no longer be obligated to pay off the debt.

Such swaps have occurred in developing nations to settle part of debts to U.S. banks and to preserve threatened land.

Headwaters Forest was at the center of fierce protests last summer and was a central issue in a multimillion-dollar ballot battle between environmentalists and the timber industry.

The environmentalists’ Proposition 130 failed by a narrow margin. It would have authorized the sale of $742 million in bonds to buy old-growth forests and established new restrictions on logging, including a virtual ban on clear- cutting.

Pacific Lumber has been criticized by environmentalists for dramatically increasing its rate of cutting in other stands to pay off junk bonds.

″Certainly, we’re trying to make it work because that seems to be what the general public wants to happen,″ said David Galitz, a spokesman for Pacific Lumber.

Price for the land is undetermined. Mantell said the state wants to buy the entire property, and possibly up to 1,500 acres more as a ″buffer″ from logging and development.

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