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Vitro Confronts Bondholders Over Bankruptcy Plan Approval

After the U.S. recession and bad bets on derivatives contracts sent Mexican glassmaker Vitro SAB (VITROA) into bankruptcy, the company has a restructuring plan in place. At least in Mexico.

Vitro is asking a U.S. Bankruptcy Judge Harlin DeWayne Hale in Dallas today to enforce the plan and stop litigation by debt holders who have been fighting to collect on $1.2 billion in defaulted bonds.

The bondholders have called the plan, which was approved by a Mexican court, “a testament to audacity, brazen manipulation and greed.” Enforcing it in the U.S. would be “manifestly contrary” to public policy, they said in court papers.

The judge must weigh whether the Mexican court’s approval of Vitro’s plan should be given deference or it conflicts too much with U.S. law and should be rejected, said Madlyn Primoff, a bankruptcy attorney at Kaye Scholer LLP in New York.

“It’s got the Good Housekeeping seal of approval from the Mexican court,” said Primoff, who isn’t involved in the case. “For the U.S. court to upset that ruling and say, ‘OK, bondholders can have at it,’ that tests the issue of how cross- border restructurings get implemented here in the U.S.”

Vitro and bondholders have been fighting over the restructuring in Mexican and U.S. courts, with creditors suing Vitro subsidiaries that guaranteed company debt to recover what they’re owed.

Threat to Vitro

The company, which makes glass containers and car windshields, wants to put an end to the litigation, saying in court papers that bondholders want to “bring Vitro to its knees by destabilizing its business and interfering with its relationships with its customers.”

Andrew Leblanc, an attorney for Vitro, told the judge at today’s hearing the case has been heavily litigated and the Mexican court’s approval is “worthy of respect.” The bondholders lost in Mexico and are “obviously disgruntled,” he said.

“They have availed themselves of every single element of Mexican law, Mexican process, Mexican procedures,” Leblanc said.

Hale’s decision probably won’t resolve litigation over the restructuring plan, and the judge said in a court order that he expects it to be appealed. The bondholders’ appeal in Mexico of the restructuring there didn’t stop it from being implemented. The plan provides $814.7 million in new 8 percent notes and $109.6 million in convertible bonds, according to Vitro.

2009 Default

In early 2009, Vitro defaulted on $1.5 billion of debt, including $1.2 billion of bonds, after construction and auto glass sales plunged during the U.S.’s worst recession since the 1930s. The company also incurred $340 million of derivative losses from bad bets on natural gas prices and currencies.

Bondholders argue that Hale should reject the bankruptcy plan in part because shareholders are retaining value while creditors aren’t being paid in full. They also oppose discharging the guaranty obligations of subsidiaries even though the units aren’t in bankruptcy. Enforcing the plan would undermine international credit markets and raise the cost of capital in emerging markets, they said.

The plan is “an outrage,” Jay Westbrook, an attorney for bondholders, told Hale.

Vitro, based in San Pedro Garza Garcia, Mexico, says the Mexican court considered the objections from creditors, and therefore the U.S. bankruptcy court “should respect and enforce” the plan.

“We are looking forward to the opportunity to demonstrate that Vitro’s restructuring is entitled to Chapter 15 enforcement in the U.S.,” Roberto Riva Palacio, a spokesman for Vitro, said in a statement.

The case is in re Vitro SAB, 11-33335, U.S. Bankruptcy Court, Northern District of Texas (Dallas).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Brendan Case in Dallas at bcase4@bloomberg.net.

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Ed Dufner at edufner@bloomberg.net.

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