Winnipeg Free Press

Today's Local Business

Motor Coach files for bankruptcy

But VP says business good, demand high

Updated: September 16, 2008 at 02:55 AM CDT

Motor Coach Industries has filed for bankruptcy protection in the United States with a package of pre-negotiated terms with lenders already in place, including conversion of $200 million of debt into equity.

The Chicago-based highway coach manufacturer employs about 1,200 people in Winnipeg and company officials say the expectation is that the financial restructuring will not have any impact on the sprawling shop floor of its Fort Garry plant.

In fact, company officials framed the event in a positive light. Peter Cotter, senior vice-president in charge of the Winnipeg operations, said rather than being a sad day, it was an important day in MCI's history with the potential to improve the company's future.

"The key for our staff is that while there have been rumours off and on over the years that MCI was going out of business... that is not the case," said Cotter. "With this filing today and the details that will follow we see no interruption in our production schedule."

The re-financing will be led by Franklin Mutual Advisers who will convert about $200 million worth of mezzanine debt into equity.

The financing will reduce total debt by $420 million and cut annual interest charges by $54 million.

Motor Coach controls more than 50 per cent of the inter-city coach business in the United States and Canada. Its customers are tour operators, private and institutional clients and municipal transit authorities.

Its U.S. public transit customers need the coaches they buy to adhere to Buy America standards in order for them to receive Federal Transit Authority funds for new buses. That means 60 per cent of components must be made in the United States along with 100 per cent of final assembly.

MCI has a final assembly plant for its D-series line of coaches in Pembina, N.D., to satisfy that requirement. It has about 200 employees there.

Employee counts in Winnipeg and Pembina have fluctuated over the years.
After 9/11, North Americans virtually stopped travelling for some time and MCI's business suffered terribly.

In early 2003, with about 1,300 Winnipeg jobs teetering in the balance, the company negotiated a new contract with workers and received a $20 million assistance package from three levels of government when it committed to make Winnipeg its manufacturing headquarters. That prompted the closing of Mexican and U.S. plants.

Intermittent layoffs and rehirings have occurred over the years since then, but Cotter said current market demands have created a solid order book. He went so far as to say if demand continues, there may need to be an increase in production in Winnipeg.
He said higher gas prices are a mixed blessing for MCI.

"It means operators have higher costs, but in many markets it puts more people in the seats," Cotter said.

Jim Kilgour, a senior finance official with the province, said terms and conditions of its original $9.5 million loan from 2003 are all current. The loan sits at $6.4 million according to court filing related to the application for bankruptcy protection.

"We received our regular payment at the beginning of this month and as far as we are concerned it is business as usual," he said.

In addition to remaining current on the loan, it also required the company to maintain certain employment levels or suffer higher interest rates. But Kilgour said MCI has always remained inside those covenants.

While the company has negotiated terms with its secured lenders, there are still negotiations needed for unsecured and trade creditors.

At least four Winnipeg suppliers have outstanding balances of more than $300,000. A company statement said "vendors should expect to be paid for post-petition purchase of goods and services in the ordinary course of business."