Due to an early delivery of logs to its parent company, Scotia Pacific Co. was able to avoid a $2.2 million shortfall and make its July 20 interest payment to noteholders - but the company's future ability to keep the notes current remains uncertain. The notes are the only publicly rated timber collateralized notes outstanding, and only one of two such deals to ever hit the market, according to Everett Rutan, an analyst at Moody's Investors Service.

Part of the reason timber as a collateral hasn't caught hold is evidenced in ScoPac's own problems. Because of the cyclical nature of the timber harvest and a changing regulatory landscape, the asset type is not optimal to provide reliable cash flows. The troubled ScoPac, a subsidiary of logging company The Pacific Lumber Co., would not comment on its restructuring plans. The company has been working with UBS Securities to restructure the remaining $743 million of timber-collateralized notes, but would not comment on specific restructuring conversations other than to confirm their existence.

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