Vitro SAB, the Mexican glassmaker that defaulted on $1.2 billion of bonds, will seek a buyer for its U.S. business if a Texas bankruptcy judge orders the units into Chapter 11.
The U.S. operations have few assets, including two small glass processing plants and distribution networks, and would face liquidation without a buyer, said Alejandro Sanchez, Vitro’s legal director, in an interview yesterday at the company’s headquarters in San Pedro Garza Garcia, a suburb of Monterrey. Vitro U.S. operations employ 3,000 and last year had about $250 million in sales, he said.
“We’re looking for alternatives so it doesn’t have to be liquidated,” Sanchez said. “If you have someone who’s willing to invest, you give peace of mind to your workers, your suppliers and your customers.”
U.S. Bankruptcy Judge Russell Nelms began a hearing yesterday in Fort Worth, Texas, at the request of creditors, including Davidson Kempner Capital Management LLC and Elliott Management Corp., to force Vitro’s U.S. units into bankruptcy. The hearing may conclude today and a decision could come as soon as April 4, Sanchez said.
Vitro defaulted on about $1.5 billion of debt, including the U.S. bonds, in February 2009 after racking up derivative losses of more than $300 million and because of a global recession that slashed demand for auto and construction glass. Creditors also have petitioned a Mexican court to declare the company in Mexico’s equivalent of Chapter 11.
The legal action in the U.S. won’t recover anything for bondholders, Sanchez said. Vitro’s assets in the U.S. will only cover guaranteed loans, such as from Bank of America Corp. (BAC), suppliers, customers and the $9 million that Vitro has pumped into the money-losing operations since November, he said.
“There will be nothing left,” he said. “We’re literally talking peanuts.”
Vitro produces flat glass in Mexico and sells replacement windshields and glass for buildings through the U.S. units. A process to find a buyer would be open and subject to a bidding process, Sanchez said. By avoiding liquidation, Vitro may have an opportunity to repurchase the business once the company’s financial difficulties are resolved, he said.
“This is a business that’s fundamental for selling our products in the U.S.,” he said.
Ruling Next Week
In Mexico, Sanchez said an appeals judge in Monterrey may rule as early as next week on the company’s voluntary bankruptcy petition and could declare Vitro in bankruptcy. Lawyers for bondholders said that a different federal judge in Monterrey also may rule next week on the creditors’ involuntary bankruptcy petition.
The first case to gain a ruling for bankruptcy will likely take precedent because there can be only one proceeding, Sanchez said. Either in the voluntary or involuntary bankruptcy, the creditors and the company will have to reach a restructuring agreement under the supervision of a court-appointed mediator, he said.
Under Mexican bankruptcy law, if an agreement can’t be reached in a maximum of nine months, the company would face liquidation.
The case is In re Vitro Asset Corp., 10-47470, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
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