WILMINGTON, Del. A reorganization plan that would allow Motor Coach Industries to emerge from federal bankruptcy protection after it pays more than $300 million in cash and new stock to its creditors has been approved by a bankruptcy court judge.

MCI executives say they hope to complete the financial transactions and plan by the end of this month, which would signal a fresh start for the bus manufacturer that has been struggling with shrinking sales amidst tough economic times.

The Schaumburg, Ill., company filed a voluntary and prearranged petition for Chapter 11 bankruptcy protection here in September, saying it had reached an agreement with secured lenders for a restructuring that would trim its debt by about $420 million.

"Today marks an important milestone in the restructuring of MCI and sets us on course as an even stronger and more competitive company," MCI President and Chief Executive Tom Sorrells said in a news release issued following approval of the plan by U.S. Bankruptcy Judge Brenden Linehan Shannon.

Sorrells called the approval five months after the filing an "impressive accomplishment" in the current economic environment and said it spoke to the core strengths of the company and its future.

Under the plan, first-lien debt of about $130 million would be paid in full with funds borrowed for the reorganization, second-lien debt of about $160 million would be paid with funds received from a rights offering to other debt holders, and third-lien debt of about $200 million would be converted into new equity.

Despite court approval of the plan, the company apparently is having difficulty raising the money it needs to complete the plan.

According to the DowJones Daily Bankruptcy Review, MCI attorney Kenneth Ziman told the judge during a hearing a week before the plan was approved in late January that the company has not done well in its attempt to secure new funds.

"We went to the market and the market did not welcome us," he said.

Ziman stressed the company still has proposals for the loans that would allow it to implement the reorganization plan and emerge from bankruptcy if they are negotiated into final agreements. However, he acknowledged during questioning by the judge that that is a "big if."

MCI insists, however, it is confident it will emerge from bankruptcy court on the schedule it set when it filed the petitions. That would mean it would be out of bankruptcy this month.

"As presented to the court this week and approved, MCI has proposals in hand for financing to support the plan and move forward, anticipating emergence from Chapter 11 by the end of February," the company said in its statement.

If the loans do not come through, though, the company could remain in bankruptcy for an undetermined time, a dilemma that other companies have faced because of the tough credit markets.