Vitro Bondholders Win Court Ruling on Defaulted Debt

Vitro SAB bondholders won a court ruling that subsidiaries of the Mexican glassmaker are liable for payment on defaulted bonds.

Justice Bernard J. Fried of New York State Supreme Court ruled the units owe unpaid principal and interest on two series of bonds under guarantee obligations, according to a decision dated March 21.

Wilmington Trust NA, the trustee representing bondholders, sued Vitro units last year, accusing Vitro and the subsidiaries, which guaranteed the debt, of a “multi-year scheme” to avoid payment. The total principal amount owed under the two series of notes is $1 billion, Wilmington Trust said.

Vitro, which defaulted on $1.2 billion in bonds, won approval in February from a Mexican court for a bankruptcy reorganization plan opposed by bondholders. The court relieved the subsidiaries of their guarantees on the bonds even though they weren’t in bankruptcy.

The bondholders unsuccessfully opposed the Mexican reorganization and have been fighting in courts in the U.S. as well. Vitro is based in San Pedro Garza Garcia, Mexico, near Monterrey.

Fried rejected Vitro’s argument that the Mexican reorganization bars suit against the subsidiaries. The judge didn’t rule on the amount owed to bondholders. A lawsuit to establish liability on the third bond issue is yet to be decided.

‘No Impact’

The ruling “will have no impact on Vitro or its subsidiaries,” Roberto Riva Palacio, a Vitro spokesman, said in an e-mailed statement. An order issued by a U.S. bankruptcy judge “prevents the vulture funds that have been attacking Vitro’s reorganization plan in the U.S. from seeking to collect on judgments and seize assets belonging to Vitro,” he said.

Bondholders are also fighting Vitro in U.S. Bankruptcy Court in Dallas and in the federal appeals court in New Orleans. Bondholders are scheduled to argue to the appellate court that the Mexican reorganization shouldn’t be enforced in the U.S. because it was approved using $1.9 billion in intercompany claims to vote down opposition from bondholders. Vitro contends the appeal should be dismissed because intervening events make the issue moot.

Vitro is also scheduled to face the bondholders at trial in bankruptcy court in Dallas on June 4, where the creditors will ask a judge to rule that the Mexican reorganization shouldn’t be enforced in the U.S.

Bankruptcy Court Ruling

The bankruptcy judge ruled earlier this month that the bondholders can move ahead with lawsuits in New York state court up to the point of obtaining judgment on the defaulted bonds. The bankruptcy judge won’t permit bondholders to collect judgments or seize assets before he rules on enforcement of the Mexican reorganization in the U.S.

The New York case is Wilmington Trust NA v. Vitro Automotriz SA, New York State Supreme Court (Manhattan), 652303-2011. The bankruptcy court suit to decide if the Mexican reorganization will be enforced in the U.S. is Vitro SAB de CV v. ACP Master Ltd., 12-03027, U.S. Bankruptcy Court, Northern District of Texas (Dallas). The bondholders’ appeal is Ad Hoc Group of Vitro Noteholders v. Vitro SAB de CV, 11-11239, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

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