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Mexico Studying Bankruptcy Law on Intercompany Debt After Vitro

Mexico is studying international best practices for corporate bankruptcy proceedings after glassmaker Vitro SAB’s use of intercompany debt caused some investors to question the country’s laws.

Vitro, which won a Mexican court’s approval this month for its debt restructuring plan, has called attention to a loophole in the country’s bankruptcy process that allowed it to use loans made to itself to qualify as its own biggest creditor.

“As we learn from experience, there may be room for improvement,” Deputy Finance Minister Gerardo Rodriguez said in a telephone interview today from Mexico City. “Looking specifically at the standard that we have currently in our law with regards to the voting rights of intercompany loans, there are different practices around the world and we need to continue exploring them.”

The ministry has spoken to both the company and bondholders throughout the process, he said.

Any changes to laws would have to go through congress, and the ministry hasn’t proposed such a change, Rodriguez said.

The refinancing plan, which was presented by a court-appointed arbitrator and based on Vitro’s proposal, swaps the $1.5 billion in defaulted debt for $814.6 million of new bonds maturing in 2019 with an interest rate of 8 percent and $95.8 million of debt convertible to shares with an interest rate of 12 percent.

“In the opinions of third-party analysts that actually know well the financials of the company, what was offered to bondholders is based on the payment capacity of the company,” Rodriguez said. “So regardless of the process, they’re getting to an end result which is what you’d like to see in restructuring processes.”

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