Motor Coach rights offering backstop party objects to last-minute plan changes

By Caroline Salls

Pittsburgh, Feb. 26 - Motor Coach Industries International, Inc. third-lien debtholder and rights offering backstop party Franklin Mutual Advisers, LLC objected to the company's motion to eliminate a final confirmation order provision from its plan of reorganization effective date conditions, arguing that the request strips Franklin Mutual of its bargained-for benefits.

According to the objection filed Thursday with the U.S. Bankruptcy Court for the District of Delaware, the company's "strained and selective method of contract interpretation seeks to advantage the debtors with every bargained-for exchange under the plan, while simultaneously stripping FMA of the benefit of its bargain."

As previously reported, the lock-up agreement under which Franklin Mutual agreed to support Motor Coach's plan of reorganization requires the plan to take effect by Feb. 28, but the plan term sheet requires the plan confirmation order to be deemed a final order.

Motor Coach said the lock-up agreement does not include a final order provision, but the backstop rights purchase and related subscription agreements do.

However, Franklin Mutual said there is no inconsistency, as the language of the plan, the disclosure statement order and the plan confirmation order all require the confirmation order to be final. Franklin Mutual said this is "an inconvenient truth that the debtors would just as soon rewrite."

Since the company's official committee of unsecured creditors appealed the confirmation ruling and is awaiting the outcome of an appeal of its motion to stay the ruling, Motor Coach said the confirmation order is not final under the plan terms.

The company said the committee's appeal will be rendered moot when the plan takes effect, but it most likely will still be pending on the plan effective date deadline.

If the plan does not take effect by Feb. 28, the lock-up agreement will terminate, triggering an event of default on the company's debtor-in-possession financing.

Franklin Mutual said in Thursday's objection that it cannot be required to lend $160 million to the company without the lending parameters being fixed.

In addition, Franklin Mutual said Motor Coach should not have waited until four days before the effective date deadline to file its motion to change the language of the plan, especially since it already knew the committee's stay motion would present a problem.

The backstop party said the company was required to give it five business days' notice of any proposed changes.

"That such notice was not provided is consistent with the debtors' cavalier attitude toward the confirmation order, as further evidenced by the requested amendment, which seeks to render plan language meaningless," Franklin Mutual said in the objection.

Motor Coach Industries, a Schaumburg, Ill.-based designer, manufacturer and marketer of inter-city coaches and related replacement parts for the North American market, filed for bankruptcy on Sept. 15. Its Chapter 11 case number is 08-12136.

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