Vitro is asking a US judge to enforce its restructuring plan and stop litigation by debt holders who have been fighting to collect on USD 1.2 billion in defaulted bonds.
After the US recession and bad bets on derivatives contracts sent Mexican glassmaker Vitro SAB into bankruptcy, the company now has a restructuring plan in place for Mexico.
On 5 June, Vitro asked US Bankruptcy Judge Harlin DeWayne Hale in Dallas to enforce the plan and stop litigation by debt holders who have been fighting to collect on USD 1.2 billion in defaulted bonds.
According to Madlyn Primoff, a bankruptcy attorney at Kaye Scholer LLP in New York, the judge must weigh whether the Mexican court’s approval of Vitro’s plan should be given deference or it conflicts too much with US law and should be rejected.
Vitro and bondholders have been fighting over the restructuring in Mexican and US courts, with creditors suing Vitro subsidiaries that guaranteed company debt to recover what they’re owed.
The company wants to put an end to the litigation and says 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 that 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 added.
Hale’s decision will probably not resolve litigation over the restructuring plan, and is expected to be appealed. The bondholders’ appeal in Mexico of the restructuring there didn’t stop it from being implemented. The plan provides USD 814.7 million in new 8% notes and USD 109.6 million in convertible bonds, according to Vitro.
In early 2009, Vitro defaulted on USD 1.5 billion of debt, including USD 1.2 billion of bonds, after construction and auto glass sales dropped heavily during the US’s worst recession since the 1930s. The company also incurred USD 340 million of derivative losses from bad operations regarding natural gas prices and currencies.
According to bondholders, Hale should reject the bankruptcy plan in part because shareholders are retaining value while creditors are not being paid in full. They also oppose discharging the guaranty obligations of subsidiaries even though the units are not in bankruptcy. Enforcing the plan would undermine international credit markets and raise the cost of capital in emerging markets, they said.
Vitro, based in San Pedro Garza Garcia, Mexico, says the Mexican court considered the objections from creditors, and therefore the US 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 US,” Roberto Riva Palacio, a spokesman for Vitro, said in a statement.