Creditors of Vitro SAB are urging the Mexican glassmaker to renew talks after a judge rejected the company’s bankruptcy plan last week, said Thomas Lauria, who represents holders of $735 million in defaulted bonds.
Mexican Judge Francisco Flores in a Jan. 7 ruling rejected Vitro’s bankruptcy proposal, which included the use of intercompany debt to gain a majority for the plan. Flores had accepted the bondholders’ group’s involuntary bankruptcy filing in December.
“This ruling signals to Vitro and its controlling shareholders that they need to promptly engage our group,” Lauria, a Miami-based partner at White & Case LLP, said in an e- mail today. “This is something they had to this point resisted doing in the hopes that they could use intercompany claims to cram down a nonconsensual restructuring.”
The Monterrey-based company and the bondholders’ group broke off talks this fall, Lauria said. Vitro responded by holding a December consent vote on its proposal to exchange $850 million of new bonds and $100 million of debt convertible to shares for $1.5 billion of defaulted debt, including the dollar bonds, Mexican peso bonds, debt from derivative losses and other liabilities.
Vitro said it gained a majority for the plan by voting $1.9 billion of intercompany debt after most third-party creditors rejected the proposal. Vitro had said the plan provided a recovery of as much as 73 cents on the dollar.
Creditors want to be paid full face value of the bonds or receive equity to make up for a writedown of debt, Lauria said.
“We think the company has sufficient income-generating power to provide a full recovery to the notes,” Lauria said. “They don’t get a free ride.”
Vitro will file an appeal to the judge’s decision within days, Claudio del Valle, chief of Vitro’s debt restructuring, said in an interview today. The appeal could take one to three months, he said.
“This ruling doesn’t change our plan in any way,” Del Valle said. “We believe that our strategy is the correct one.”
The bondholders’ group has adopted a strategy to file bankruptcy proceedings in Mexico against all Vitro units, which number close to 40, Lauria said. So far, the group has filed against 19 units and about half have been accepted. Flores has consolidated some of the cases, he said.
In his decision, Flores said the use of intercompany debt to obtain a creditor majority “would result completely contrary” to the intent of Mexico’s bankruptcy law, according to a Federal Judicial Counsel statement. Vitro doesn’t need to use the bankruptcy proceedings to restructure its intercompany debt because that debt is controlled completely by the company, Flores said in the ruling.
“The ruling says that Mexico is really going to respect creditors’ rights,” Lauria said. “That should over the long term have an effect of making financing more available in Mexico at better prices.”
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