After a week-long break and another failed attempt at a mediated settlement, Pacific Lumber Co. announced in bankruptcy court Tuesday that a deal was in the works with Mendocino Redwood Co.

PALCO attorney Shelby Jordan told the court on the opening day of the resumed hearings the he spent the past 30 hours drafting what he thought would be a consensual plan that could help resolve the case sooner.

If PALCO and the other parties agreed to the new deal, PALCO would forgo presenting its reorganization plan in court, which was scheduled to begin Tuesday and possibly run the rest of the week.

Although the details weren’t disclosed, Jordan said the new deal is being struck between PALCO, MAXXAM Inc., MRC and Marathon Structured Finance Fund.

MRC and Marathon submitted their own competing plan in court, which has garnered broad support and aims to secure the bankrupt company’s lands and mill to continue commercial timber operations.

Jordan said the new proposal would fit within the existing reorganization plan’s framework and wouldn’t require having to send the document back out to creditors for another vote.

Judge Richard Schmidt agreed to end Tuesday’s afternoon session early to allow the parties to continue their negotiations.

Scotia Pacific Co. was not named as part of the draft deal, but Jordan said SCOPAC isn’t in disagreement over the plan and its attorneys were still reviewing it.

Also not mentioned as a player in the new deal is the Indenture Trustee representing SCOPAC’s largest creditor, the Timber Noteholders, which hold approximately $760 million in secured debt against SCOPAC’s 210,000 acres of timberlands.

Attorney William Greendyke, representing the Noteholders, told the Schmidt it was the first he had heard of the deal and raised the specter of more delays.

“If it doesn’t come to fruition, what impact does it have on these hearings?” Greendyke asked.

In a repeat of his previous concerns about the 15-month-old bankruptcy case’s mounting costs, Schmidt said he wanted to see the case finished.

“Delay is sometimes death,” Schmidt said.

The morning session of the proceedings heard the conclusion of the Noteholders’ witnesses regarding its reorganization plan to liquidate SCOPAC’s 210,000 acres of forest lands.

The Noteholders plan was amended and resubmitted to the court this week to incorporate updated information for a bid by Beal Bank owner and billionaire Andy Beal.

Beal offered $603 million to purchase SCOPAC’s lands from the Noteholders if their plan is approved.

Former California Gov. Pete Wilson, who was selected by the Noteholders to lead its reorganization effort, also made a quiet appearance in court Tuesday.

Wilson served as California’s governor from 1991 to 1998, and is now a principal of Bingham Consulting Group — a subsidiary of the law firm Bingham McCutchen that represents the Noteholders.

It was mentioned in court that Wilson would be paid $125,000 per month in his position, which is expected to last at least six months.

On the stand Tuesday for the Noteholders was Chris Mathews, a vice president of the Bank of New York who supervises default and bankruptcy accounts.

For several hours, Mathews testified to the details of the amended plan and Beal Bank’s offer, which the Noteholders’ attorneys maintained would not require re-soliciting the plan for another vote among creditors.

David Neier, an attorney for Marathon, told the judge that not everyone agreed with that assessment and there were disclosure issues with the plan he said isn’t confirmable.

In response to questions suggesting that Beal’s offer wasn’t serious, Mathews testified that the Beal Bank offer was a viable bid that had the effect of building interest in SCOPAC’s timberlands, as well as attracting investors in the mill.

“We would love to see more bids,” Matthews.

In his own line of questioning, Schmidt asked whether the Noteholders’ amended plan “watered down,” or gave less money to pay back some of the claims for the Unsecured Creditors, which the attorney for the Noteholders agreed was the case.

“That is not an insignificant change to the plan,” Schmidt said.

Schmidt said that was a legal issue that could delay the confirmation of that plan.

The hearing is scheduled to resume this morning at 9 a.m. in Corpus Christi, Texas.