Vitro Confronts Bondholders in Bid to Enforce Bankruptcy Plan
By David McLaughlin and Brendan Case-Jun 4, 2012 12:00 AM ET
After the U.S. recession and bad bets on derivatives contracts sent Mexican glassmaker Vitro SAB (VITROA) into bankruptcy, the company has a restructuring plan in place. At least in Mexico.
Vitro is scheduled to ask a U.S. bankruptcy judge today to enforce its plan and stop litigation by debt holders who have been fighting to collect on $1.2 billion in defaulted bonds.
The bondholders have called the reorganization plan, which was approved by a Mexican court, “a testament to audacity, brazen manipulation and greed.” Enforcing the plan in the U.S. would be “manifestly contrary” to public policy, they said in court papers.
U.S. Bankruptcy Judge Harlin Hale in Dallas will have to weigh whether the Mexican court’s approval of Vitro’s plan should be given deference or whether it conflicts too much with U.S. law and should be rejected, said Madlyn Primoff, a bankruptcy attorney at Kaye Scholer LLP in New York.
“It’s got the Good Housekeeping seal of approval from the Mexican court,” said Primoff, who isn’t involved in the case. “For the U.S. court to upset that ruling and say, `OK, bondholders can have at it,’ that tests the issue of how cross- border restructurings get implemented here in the U.S.”
The hearing comes as Vitro and bondholders have been fighting over the restructuring in Mexican and U.S. courts, with creditors suing Vitro subsidiaries that guaranteed company debt to recover what they’re owed. Vitro, which makes glass containers and car windshields, wants to put an end to the litigation, saying in court papers that bondholders want to “bring Vitro to its knees by destabilizing its business and interfering with its relationships with its customers.”
Hale’s decision probably won’t resolve litigation over the restructuring plan, and the judge said in a court order that he expects his ruling to be appealed. While bondholders appealed the Mexican restructuring in Mexico, the appeal did not stop the plan from being implemented. The plan provides $814.7 million in new 8 percent notes and $109.6 million in convertible bonds, according to Vitro.
In early 2009, Vitro defaulted on $1.5 billion of debt, including $1.2 billion of bonds, after construction and auto glass sales plunged during the U.S.’s worst recession since the 1930s. The company also incurred $340 million of derivative losses from bad bets on natural gas prices and currencies.
Bondholders argue Hale should reject the bankruptcy plan in part because shareholders are retaining value while creditors aren’t being paid in full. They also oppose discharging the guaranty obligations of subsidiaries even though the units aren’t 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 U.S. 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 U.S.,” Roberto Riva Palacio, a spokesman for Vitro, said in a statement.
A spokesman for the bondholders, Donald Cutler, declined to comment on the dispute.