Vitro SAB (VITROA) lost its bid for a court ruling enforcing its Mexican bankruptcy plan in the U.S. as a federal judge ruled in favor of bondholders that have been fighting the glassmaker’s restructuring.
U.S. Bankruptcy Judge Harlin DeWayne Hale in Dallas denied Vitro’s request to enforce the plan following a hearing last week on whether the proposal should be recognized in the U.S., according to a decision today.
Hale said that Vitro’s bankruptcy plan is “manifestly contrary” to U.S. policy and can’t be enforced in the U.S. The plan improperly extinguishes claims of bondholders against units not in bankruptcy that guaranteed Vitro debt, he said.
“If approved for enforcement, the present order would create precedent without any seeming bounds,” the judge wrote.
The decision is a setback for Vitro in its battle with bondholders, who have called the company’s bankruptcy plan “a testament to audacity, brazen manipulation and greed.” The two sides have been fighting in courts in the U.S. and Mexico over the plan following Vitro’s default. Bondholders have sued Vitro units that guaranteed company debt to recover what they’re owed.
“The protection of third party claims in a bankruptcy case is a fundamental policy of the United States,” the judge wrote in his ruling. “The Concurso Approval Order does not simply modify such claims against non-debtors, they are extinguished.”
Hale said his ruling is stayed until June 29 to give Vitro time to file an appeal.
Donald Cutler, a spokesman for the bondholders, declined to comment on the ruling.
Roberto Riva Palacio, a spokesman for Vitro, said the company is disappointed with the ruling “at the subsidiary level.” He said the company will continue to defend “the validity of our restructuring” and will appeal the ruling.
“This decision will not impact our ability to serve our U.S. customers due to the fact that our main subsidiary is protected by a separate and distinct Concurso proceeding,” he said in an e-mail. “Vitro’s financial restructuring was fully consistent with Mexican law, which has been consistently recognized and respected in the U.S.”
Vitro, which makes glass containers and car windshields, defaulted on $1.5 billion of debt in 2009, including $1.2 billion of bonds, after construction and auto-glass sales plunged. The company also incurred $340 million of derivative losses.
Vitro, based in San Pedro Garza Garcia, Mexico, argued that bondholders had pressed their case in Mexico and lost. The bankruptcy plan approved there should be respected in the U.S., it said. Rejecting the plan would cause “utter chaos” for the company, Andrew Leblanc, a Vitro attorney, told Hale during the hearing.
Bondholders argued the plan is unfair to creditors and contradicts core components of U.S. bankruptcy law.