Vitro fails to make interest payments on notes

Vitro, S.A.B. de C.V. announced 29 January 2009 that four of the counterparties with whom the company or its subsidiaries entered into derivative financial instrument have notified the Mexican company…

Vitro, S.A.B. de C.V. announced 29 January 2009 that four of the counterparties with whom the company or its subsidiaries entered into derivative financial instrument have notified the Mexican company that its failure to make payment of USD 293 million (including approximately USD 80 million held as cash collateral by such counterparties) under the agreements constitutes event of default and have effectively demanded payment. As of 31 December 2008, Vitro had a net loss of approximately USD 358 million (not including accrued interest), including a loss of USD 33 million related to the only open derivative financial instruments covering natural gas contracts from 2009-2011 with Pemex. The default under the DFI Agreements result in an event of default under the indentures for notes enabling note holders or trustees to declare the notes immediately due and payable. The amounts concerned are USD 300 million principal (and accrued interest) for the 2012 Notes, USD 700 million principal amount (and accrued interest) of the 2017 Notes, and the USD 216 million principal outstanding amount (and accrued interest) of the 2013 Notes. In addition, the DFI default triggers events of default under various other financing agreements, worth a total of USD 81 million. Vitro and its subsidiaries are also in default under loan agreements of approximately USD 17 million, and the lenders may declare such debt as immediately due and payable. As of 31 December 2008, the counterparties held an aggregate of approximately USD 85 million (not including accrued interest), as cash collateral for the obligations of the Company and/or its subsidiaries under the DFI Agreements. In the light of the four counterparty notices and to preserve the necessary cash to continue operations, Vitro said it did not intend to make scheduled payments due 2 February 2009 of interest of USD 12.9 million on its 8.625% Senior Notes due 2012 and USD 31.9 million on its 9.125% Senior Notes due 2017. The failure of the company to make the interest payments within 30 days would constitute a separate event of default under the indentures governing the 2012 Notes and the 2017 Notes. Vitro says it intends to maintain its operations and continue its business relationships with its customers and suppliers as it seeks to achieve a debt restructuring. As of 31 December 2008, the company had unrestricted cash on hand and cash equivalents of approximately USD 103 million dollars, for operating costs and expenses. Vitro has initiated discussions with the counterparties, its bondholders and its creditors to achieve an organized financial restructuring to improve its balance sheet and it continues to analyze its alternatives in regard to the DFI Agreements, although there is no guarantee of a successful outcome. Vitro estimates that measures to reduce operating costs and divest assets, will represent annual savings between USD 80 and USD 120 million dollars. The company says it is confident that it is taking the right steps to position itself for the future. It sees this as a temporary measure to allow time to negotiate with all parties while ensuring it will be able to continue providing the products and services its customers need, and also provide it with the means to pay for required materials and services.