A Debt-for-Nature Swap?

Imagine swapping majestic old redwood trees for a batch of junk bonds. It may sound like heresy, but the seemingly uneven exchange of irreplaceable trees for a paper concoction of Wall Street could provide a novel new way to preserve environmentally sensitive lands.

California officials are exploring such an exchange to save the Headwaters Forest in Northern California, home to the largest grove of privately owned old-growth redwoods. Pacific Lumber Co. owns the forest in Humboldt County where towering redwoods are as old as 1,700 years. Plans to cut the trees triggered bitter protests.

The state is trying to acquire high-risk, high-yield junk bonds issued by Pacific Lumber. Those bonds are now in the hands of the Resolution Trust Corp. after the federal agency seized the ailing Columbia Savings & Loan of Beverly Hills. California officials and environmentalists would like to use those bonds as part of a deal to buy the Headwaters Forest from Pacific Lumber.

The problem is in acquiring the bonds, which have a market value of about $55 million. The RTC is under a statutory mandate to sell assets for maximum profits. But on Monday, the agency signaled a policy change in announcing that it would sell some assets at bargain prices to expedite sales. California ideally would like the RTC to donate the bonds to preserve the forest. Since that is not likely to happen absent time-consuming, statutory changes, the agency could sell the bonds at a steep discount to the state or, better yet, accept some state-owned land elsewhere in lieu of money. The state would return the bonds as partial payment to Pacific Lumber, which is willing to sell Headwaters Forest.

If such an agreement is reached, it’s believed that it would be the first debt-for-nature swap in the United States. Such exchanges have been used in the Third World by environmentalists to preserve ecologically important lands. The RTC holds the key to using this novel approach to save some of California’s old- growth forest. The agency certainly must protect taxpayer interests, but preserving the Headwaters Forest has a value to the public that transcends mere dollars.