Motor Coach Industries to Restructure Balance Sheet with Pre-Negotiated Chapter 11 Filing
2008-09-15 14:45:01.320 GMT
Debt Reduced By Approximately $420 Million Upon MCI's Emergence
from Chapter 11
Franklin Mutual Advisers, LLC and Affiliates to Invest up to $160
Million of New Equity to Repay Existing Debt
MCI to Continue Normal Operations with No Impact to Coach
Production or Service; Company Secures $315 Million in DIP Financing
SCHAUMBURG, ILL.--(BUSINESS WIRE)--September 15, 2008
Motor Coach Industries ("MCI" or the "Company"), the leading
designer, manufacturer and marketer of coaches and the industry's
leading supplier of coach-related aftermarket parts and services,
today announced that the Company has reached agreement with its
secured lenders regarding a restructuring that will substantially
reduce the Company's debt.
The restructuring, which will be implemented by means of a
pre-negotiated chapter 11 filing, will reduce the Company's total
indebtedness by approximately $420 million and would be expected to
improve cash flow by significantly reducing ongoing interest expense
by approximately $54 million annually. The restructuring plan will be
funded by Franklin Mutual Advisers, LLC and certain of its affiliates
(collectively "FMA"), a global investment management firm.
Key elements of the proposed restructuring include:
-- Repayment in full of the Company's approximately $160 million
second lien secured debt
-- Conversion of approximately $200 million of third lien secured
debt into new equity of the reorganized Company
-- Support of payments to MCI's critical vendors for pre-petition
purchases of goods and services
The pre-negotiated chapter 11 filing is expected to have no impact
on the Company's production facilities, delivery schedules, after-sale
parts availability or service centers. During the chapter 11 process,
vendors should expect to be paid for post-petition purchases of goods
and services in the ordinary course of business. The filing pertains
only to MCI's operations in the United States. The Company's Canadian
operations are not included in the filing.
"Over the past several years, MCI has worked hard on a number of
initiatives to enhance our coach assembly capabilities, responsiveness
and supply chain effectiveness. More recently, in an effort to
strengthen MCI, we have been working with our financial advisors and
existing lenders to evaluate options regarding the optimal debt
structure for the company," said Tom Sorrells, President and CEO. "We
made the strategic decision to significantly reduce our debt,
strengthen our balance sheet and access new capital through a
voluntary filing under chapter 11 so that we can build on our
leadership position in the industry. We intend to work with our
current vendors and to continue operations without interruption to our
customers. The Company appreciates FMA's substantial financial
contribution to our restructuring and their support of our on-going
business. Our intention is to move quickly through the chapter 11
process and emerge by February 2009."
In conjunction with its filing, MCI has secured a total of $315
million of debtor-in-possession ("DIP") financing, comprised of a $170
million senior DIP financing facility and $145 million junior DIP
financing facility. GE Capital is the arranger and largest lender of
the senior DIP facility that will refinance MCI's existing first lien
debt and provide additional liquidity necessary for day-to-day
operations. Goldman Sachs Credit Partners, L.P. is the arranger of,
and Monarch Alternative Capital LP (through certain of its affiliates
and funds under its management) is participating in, the junior DIP
facility. If approved by the Bankruptcy Court, the collective DIP
financing will provide ample liquidity, enabling MCI to meet all of
its post-petition obligations through the restructuring process.
"Today we are taking the steps to position MCI for the future,"
added Mr. Sorrells. "Our core business is sound. We are receiving and
processing orders as usual and existing orders will be delivered as
scheduled. Our production operations, delivery schedules and customer
service functions will continue without interruption. With a solid
financial foundation, we will be able to take advantage of the
opportunities ahead and allow MCI to reach its full potential."
MCI is advised by Rothschild Inc., AlixPartners LLP and Simpson
Thacher & Bartlett LLP.
Additional information regarding the case can found at the
Company's web site: www.mcicoach.com. Information regarding
court-filed documents is available to the public at
http://pacer.psc.uscourts.gov or at
www.kccllc.net/motorcoachindustries.
Commemorating its 75th anniversary, Motor Coach Industries,
headquartered in Schaumburg, Illinois, is the largest manufacturer of
intercity coaches for the tour, charter, line-haul, scheduled service,
and commuter transit sectors in the U.S. and Canada. The Company also
operates seven sales centers and nine service centers in the U.S. and
Canada and is the industry's leading supplier of aftermarket parts for
most makes and models.
Hi RR Tex,
Funny, but it sounds like a round about way to fudge #'s to me..
Allthough my local MCI rep told me yesterday that they said no job cuts were on the table, I don't see how they will
turn debt into profit with out either, cutting work force/expences or increasing sales.....
Nick-
Just a way to reduce their instrest rate probably borrowed money at 1% over prime when it 5.25% today the prime is 2.25% huge saving look for more large corporation's to do the same if banks don't work with them there is a lot of businesses at the end of their credit line right now,think of what you do if no back bills have to be paid for 5 months have a great day
MCI does build the best bus on the road. At least thats my 2 cents
Looks like they did two things to benefit their cash flow:
1.) Re-negotiated debt with the lenders. If I owe $25 to Joe, I go to Joe and say, "Joe, I'm in deep @#$% and we're about to go under. I'm offering you $15 now to pay clear the debt. You can accept that or get in line at the bankruptcy court and hope to get pennies." Individuals do this all the time. In fact, many of the "consumer credit counseling" services are built around this concept. They go to the credit card companies and offer them a reduced settlement to avoid them losing the entire amount in a bankruptcy. Most creditors will accept "something" over "nothing" especially if they have the continued opportunity to make more money from you down the road.
2.) They reduced their interest rate on their debt, again, negotiated with the lenders. If I am paying $100 million just in interest every year on my debt, and I can get the creditor to agree to a lower rate so that I am only paying $50 million in interest, I have freed up $50 million in cash for operations and debt reduction. Again, something individuals do all the time, especially with "consumer credit counseling" services. They get the CC companies to reduce the interest rate so that you can actually make your payments AND pay off principal with your limited cash flow. Beats losing the entire debt in bankruptcy.
From what the article said, it looks like they gave some creditors shares of the company in return for these considerations, which makes sense to me. It gives the creditor something as incentive for restructuring the debt. It also gives the creditor a vested interest in making sure the company succeeds. If the company fails, the creditor loses. So, future activities with the lender now have additional incentive as well.
It seems like the CEO of MCI has his head on straight. He looked bad economic times in the face and made some difficult but smart decisions to make sure the company survives. Oddly enough, it is the kind of thing that makes investors and the stock market look favorably on a company even though it is going through a bankruptcy.
Gee, didn't the Federal Reserve bail them out, yet? That seems to be the new gov't entitlement program these days.