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Inland Fiber receives court-approved default notice on 9 5/8% senior notes
By Ted A. Knutson
Washington, Jan. 14 - Inland Fiber Group LLC said it received a default notice on its
$225 million face value of 9 5/8% senior motes due 2007 on Jan. 13.
The notice followed a late-December partial summary judgment by the New Castle County Delaware Court of Chancery giving U.S. Bank NA, the notes' trustee, a go-head for the action.
In the memorandum opinion, the court agreed with U.S. Bank that an indenture to the notes was violated when Inland, formed in 1996 by John M. Rudey, transferred millions of dollars of timberlands and cutting rights to U.S. Timberlands Yakima, LLC, created by Rudey in 1999, and Yakima in turned used those assets as collateral for a loan.
In return for the transfers, Inland was to have received a "guaranteed" annual return and a51% voting rights in Yakima. The guaranteed return has never been paid and as of Dec. 31, 2002, Yakima owed $5 million on the agreement.
The decision noted U.S. Timberlands Klamath Falls LLC - as Inland Fiber was then known - had transferred $40.5 million in timberland and cutting rights to Yakima which used them as collateral on a loan from the Bank of Montreal. When the loan was repaid on Sept. 14 of that year, Yakima immediately took out another loan with MBIA Insurance Corp. and used the wood and rights again as collateral.
"Because Yakima was a restricted subsidiary of the issuer, the placement of a lien on the transferred assets, without providing an equal and ratable security interest to the noteholders in those assets, violated the indenture. That violation has never been cured and has ripened into an event of default," the court said.
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