The federal bankruptcy judge overseeing Pacific Lumber Co.’s Chapter 11 proceeding said the case started out with very little chance for a settlement among the parties to resolve the case.

Now, 15 months into the bankruptcy, stakeholders are still locked in a stalemate centered largely over how much PALCO’s assets are worth.

Judge Richard Schmidt ordered a hearing Thursday to learn if there had been any progress toward a deal during a two-week break in the confirmation hearings.

The attorneys told Schmidt there wasn’t anything new to report, they indicated they were continuing to communicate and brainstorm.

While Schmidt said he is considering ordering the parties into mediation again, he continued to push the parties to find their own solution that might be better for all of them.

“Somebody is going to win and somebody is going to lose if I have to decide it,” Schmidt said.

Although PALCO has yet to present its reorganization strategy to the court, Schmidt said the bankruptcy case is largely boiling down to two creditor groups’ competing plans.

On one side are the Timber Noteholders, who want to recoup the nearly $800 million they loaned the company by selling off the 210,000 acres of timber lands they hold as collateral.

They say putting it on the open market ensures they’ll get a fair price.

On the other side are Mendocino Redwood Co. and PALCO creditor Marathon Structured Finance Fund, which joined together in a plan to secure the timber lands and use the sawmill Marathon holds as collateral to continue timber and mill operations.

Schmidt said Thursday that a resolution hinges on an agreement between MRC and Beal Bank, which made a $603 million offer to the Noteholders for the timberlands.

Acknowledging that the MRC plan has considerable support from California’s timber regulators and the community, Schmidt said it appeared the only plan there can be any agreement over is some sort of alternative to the MRC/Marathon plan.

And Schmidt said the best solution for the bankruptcy case is one that deals with PALCO’s town and mill, not just its trees.

If Marathon and MRC believe the Noteholders aren’t going to settle for less money than the roughly $420 million they are offering for the land, Schmidt said they need to fix the legal snags so their plan can be confirmed.

Marathon Asset Manager Matthew Breckenridge said if their plan isn’t confirmed, Marathon will be forced to shut down the mill.

Breckenridge said Marathon can’t continue to let its investors lose money on the mill he said is losing $2 million each month.

While none of the attorneys representing the bankruptcy stakeholders asked the judge to initiate mediation, none of them said they were opposed to it and signaled they would comply with whatever the court ordered.

“I am never reluctant to order mediation,” Schmidt said. “I am always reluctant to order a particular mediator.”

Attorneys were asked to consider and pick among the three judges Schmidt named in court who were available.

Although the PALCO attorneys told the judge they view settlement talks as positive, attorney Shelby Jordan said the company doesn’t view itself as the leader in resolving the disputes between the creditors.

Jacob Cherner, representing Beal Bank, told the judge he didn’t want the parties ordered mediation.

“There have been many opportunities to settle and they haven’t,” Cherner said.

The bankruptcy hearings resume April 29.