Motor Coach scores legal victory in reorganization plan

Schaumburg-based Motor Coach Industries International Inc., the bus manufacturer whose Chapter 11 plan is set for a Jan. 28 confirmation hearing, achieved a signal victory over the unsecured creditors when the bankruptcy judge in Delaware ruled on Jan. 23 that the creditors' committee is precluded from raising one of their primary objections to approval of the reorganization plan.

The committee was contending that the plan improperly discriminates against some unsecured creditors who receive little or nothing while others already were paid in full. The company responded by saying that the issue was decided conclusively early in the case when the court approved a so- called critical vendor motion that allowed paying some unsecured creditors in full.

The bankruptcy judge signed an order on Jan. 23 precluding the committee from making the discrimination argument.

The committee filed a separate emergency motion asking for a three-week delay in the confirmation hearing that was then set for Jan. 26. The bankruptcy judge bent in the committee's favor, but only to the extent of moving the confirmation hearing back two days to Jan. 28.

The unsecured creditors' committee has been opposing the reorganization plan that will pay its constituents nothing. The committee previously said there would be a "lengthy trial" over whether the plan is proper.

The lockup agreement with the plan sponsor requires confirming the plan by Jan. 28.

The plan would reduce debt by $300 million while converting $209 million of third-lien debt into all of the new equity. The plan is to pay off the first-lien debt in full with financing borrowed for the reorganization and repay the second-lien debt with proceeds from a $160 million backstopped rights offering where third-lien creditors can buy new preferred stock.

The company's debt includes $133 million on a first lien credit, $163 million in second-lien debt, plus the third-lien debt of $209 million. Total debt, according to a court filing, is $765 million. Other debt includes $270 million in senior subordinated notes.

JLL Partners Fund III LP acquired control of Motor Coach in 1999. It holds $209 million of the subordinates debt.

The case is Motor Coach Industries International Inc., 08- 12136, U.S. Bankruptcy Court, District of Delaware (Wilmington).