Defaulted Vitro Bonds Rally to 23-Month High as Creditors Bet on New Offer

Vitro SAB’s defaulted bonds have climbed to a 23-month high on speculation Mexico’s biggest glassmaker will sweeten an offer to restructure $1.2 billion in debt that was rejected by creditors last month.

Vitro’s 9.125 percent bonds maturing in 2017 have more than doubled in price to 50 cents yesterday on the dollar from a low of 21.25 cents on March 11, 2009, a month after the Monterrey- based company defaulted. They reached 51 cents on Aug. 2, the highest since Oct. 3, 2008. Prices declined to 49.25 cents today, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority.

Fidelity Management & Research and Lord Abbett & Co. are among debt holders who rejected three restructuring proposals made by the company. Vitro last week postponed a request from holders to accept or reject a July proposal and said it will continue talks, suggesting it may increase the offer, according to BCP Securities LLC, an investment bank in Greenwich, Connecticut, specializing in emerging markets. That offer was worth about 42 cents on the dollar, according to BCP estimates.

“The market is reacting to the fact that the company withdrew that offer that no one really liked and is going to re- cut it and come up with something better,” said Jim Harper, corporate research director at BCP, which also manages bond sales for companies.

Alex Wolfe, a New York-based spokesman for the creditor group, declined to comment on the negotiations. Chris Finn, a spokesman for Lord Abbett in Jersey City, New Jersey, declined to comment as did Jenny Engle, a spokeswoman for Fidelity in Boston.

New Talks

Vitro has begun talks with creditors that didn’t form part of the original negotiating group and may revise its offer to help win approval next month, Alejandro Sanchez, legal director for Vitro, said in an interview from Monterrey.

Vitro stopped paying debt after the global recession cut sales of glass for autos and construction and the company racked up derivative losses of more than $240 million with natural-gas and currency bets. A rebound in cash flow may enable it to offer bondholders a more attractive settlement, said Alexander Monroy, a debt analyst with Barclays Capital Inc.

Earlier Proposal

Mexico’s auto industry has begun to recover, boosting Vitro’s earnings before interest, taxes, depreciation and amortization 12 percent in the first six months of this year to $123 million. Ebitda, a measure of cash flow, may surpass Vitro’s forecast of $205 million to $215 million for 2010 after dropping to $237 million last year, said Harper and Monroy.

“If the company is really serious about making a deal now, they should be very clear about what creditors are looking for,” Monroy, who’s based in New York, said. “The ball is pretty much in the company’s corner.”

In July, Vitro proposed swapping $930 million of new bonds and convertible notes and $75 million in cash for about $1.5 billion of defaulted bonds and other debt. Vitro’s first proposal in September 2009 was worth about 20 cents, according to Harper’s estimates.

Bondholders may hold out for more, Monroy said. The company could offer creditors new debt at 60 cents on the dollar and still remain profitable, he said.

Debt Workouts

After Vitro announced it would seek consent among all bondholders for its latest proposal, the creditor group, which represents $500 million of bonds, announced that holders of $300 million of bonds had joined in rejecting the offer. Vitro said it would delay the consent solicitation until September.

“Somewhere there’s a breakeven point,” Harper said. “If there’s something worth 50 cents on the dollar, I think that deal gets done.”

In the two latest debt workouts for Mexican companies, Controladora Comercial Mexicana SAB reached an agreement with creditors that was worth 55 cents on the dollar and Bio Pappel SAB, which changed its name from Corporacion Durango, paid 50 cents, Harper said.

Vitro was founded in 1909 by investors that included the great-grandfather of Chairman Adrian Sada. The company announced on April 29 that Sada and three family members formed a voting bloc with Mexican businessman Alfredo Harp Helu, who owned a 9.86 percent stake, to solidify control over Vitro. Harp was authorized by the board to raise his stake to as much as 15 percent.

Vitro’s creditors said in an Aug. 16 statement that they hired a Mexican law firm after saying two weeks earlier they may “be forced to exercise remedies against Vitro.”

“Pushing the company into bankruptcy is still an option that is being considered, and that’s why they went out and hired these litigators,” Monroy said.

The creditor group hasn’t directly discussed forcing the company into bankruptcy, Vitro’s Sanchez said. Vitro will continue its plan to seek approval for its restructuring from a majority of bondholders, he said.

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

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