Vitro Creditors May Face Lengthy Legal Fight Over Restructuring

Vitro SAB bondholders may face a “lengthy legal process” while the Mexican glassmaker and a creditors’ group face off in court over an untested area of bankruptcy law, an analyst said.

The Monterrey-based company said yesterday it plans to file a pre-packaged restructuring in Mexico court by Dec. 16. Vitro is continuing with its plan even after as much as 80 percent of holders of $1.2 billion of defaulted dollar bonds rejected its plan, Alexander Monroy, a debt analyst at Barclays Capital Inc. in New York, said in a Dec. 8 report.

Vitro said it will vote $1.9 billion of intercompany debt to ensure a majority of creditors support the plan, which proposes exchanging $850 million of new bonds and $100 million of debt convertible to shares for $1.5 billion of debt in default. A lawyer for the creditors’ group said the intercompany debt shouldn’t be allowed.

“A ruling in favor of the company, in our opinion, would be very unflattering for Mexico and could potentially cause a re-pricing of all Mexican high-yield debt and could also usher in a new era of anti-intercompany debt covenants,” Monroy said in the report.

Vitro defaulted on $1.2 billion of bonds and about $300 million of other debt, including derivative losses, in February 2009 after glass demand plummeted for automobiles and construction -- two of the industries hardest hit by the worst recession since the 1930s.

Creditor Vote

The company has said its offer is worth about 68 cents on the dollar. Bondholders had rejected three offers before the company decided to take the debt plan to a vote among creditors in November. Alejandro Sanchez, Vitro’s chief legal officer, said in a Nov. 26 interview that the creditors’ group and the company were 1 percentage point away from a consensual agreement before talks broke down.

Holders of 30 percent of Vitro’s debt, excluding the intercompany loans, accepted the offer as of Dec. 7, Vitro said. An offer to pay 57.5 cents on the dollar in cash for debt was accepted by holders of $30 million. Vitro said it extended the exchange offer to Dec. 21, while the cash offer won’t be extended.

The low number of creditors who accepted the offer bolsters the bondholders’ case, said Thomas Lauria, a partner at White & Case LLP in Miami, who represents holders of about $700 million of bonds.

“Their intention is to impose a deal that has been basically rejected unanimously by third parties,” Lauria said in an interview. “They are going to try to impose it by using intercompany claims.”

Albert Chico, a spokesman for Vitro, declined to comment.

‘Bogus’ Debt

Creditors learned of the amount of intercompany debt in a November filing and still aren’t clear on how it was obtained or where it’s held, Lauria said.

“I think it’s going to be proven that a substantial amount of that intercompany debt is bogus,” Lauria said.

Lauria said creditors have filed for bankruptcy proceedings in Mexico against Vitro’s subsidiaries instead of the holding company, making the intercompany debt ineligible to be voted in favor of the plan, he said.

“There’s no precedent in any decisional law for any of this,” Lauria said.

Vitro is offering a consent payment of 5 percent to creditors who accepted the offer by Dec. 13 and another 5 percent payment for those who agree by Dec. 21, the company said in a statement.

The filing for contested bankruptcy by an undisclosed number of creditors won’t affect Vitro’s operations or its plan to file a voluntary proceeding, said Vitro’s Sanchez.

“The goal of this minority group is only to try to surprise and generate confusion in order to distract from Vitro’s orderly restructuring process,” Sanchez said in a statement yesterday.

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

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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