Bloomberg News

Vitro Arbitrator Says Restructuring May Extend Past Dec. 31

November 29, 2011

(Updates with comments on deadline from lawyer representing dissident bondholders in seventh paragraph.)

Nov. 29 (Bloomberg) -- Vitro SAB, the Mexican glassmaker that defaulted on $1.5 billion of bonds, probably won’t conclude its debt restructuring by year-end as the company anticipates, the court-appointed arbitrator in the proceedings said.

External creditors, who oppose Vitro’s restructuring proposal, will raise more legal challenges with the judge in the case, arbitrator Javier Navarro-Velasco said by telephone from Monterrey, Mexico. He will present the proposal to the judge by Dec. 5 and said he expects 70 percent of creditors, including intercompany debt controlled by subsidiaries, to approve.

“I couldn’t say with certainty that this is going to be resolved by Dec. 31,” he said. “It could be a little more.”

Vitro said yesterday it expects to complete a deal “before year’s end.” The proposal by the San Pedro Garza Garcia, Mexico-based company includes $814.6 million of new bonds maturing in 2019 and $95.8 million of mandatory convertible debt. Vitro said Nov. 22 that shareholders approved the plan.

“We are currently working to implement our plan as soon as the judge’s ruling is issued to all creditors who timely consent to the restructuring plan,” Chief Restructuring Officer Claudio del Valle said in the statement yesterday.

Consenting creditors would likely get securities and cash with a recovery on current face value of 47.6 percent to 60 percent, depending on how many holders agree, Jacob Steinfeld, a JPMorgan Chase & Co. analyst in New York, said in a Nov. 7 note. Nonconsenting creditors would recover less, he said.

‘Impossible’ Deadline

Jaime Guerra, a lawyer representing the group of dissenting bondholders in Mexico, said today it’s “materially impossible” for the case to be resolved by the end of the year.

“The truth is I think a lot still has to be resolved,” he said in a phone interview from New York. “Our objections are still pending.”

Navarro-Velasco said external creditors have presented motions for him to be dismissed as the case’s arbitrator and the judge may decide on the requests within 45 days.

Guerra confirmed that the bondholders have asked for Navarro-Velasco’s removal because “he hasn’t fulfilled his duties as arbitrator.”

Navarro-Velasco said he was able to achieve a proposal more favorable for external creditors than Vitro’s original plan, which had included $850 million of new bonds maturing in 2019 and $100 million of debt that would convert to a 15 percent equity stake if the debt isn’t paid.

“It’s not the percentages that the creditors would like,” he said. “But are there benefits? Yes, there are.”

‘Viable Plan’

He said the mandatory convertible bonds could now convert to a 20 percent stake in Vitro and said the proposed interest rate on the notes is 12 percent, compared with the originally proposed 10.5 percent rate.

Vitro doesn’t have the capacity to take on more debt, and the proposal “is a viable plan and it’s also fair for creditors,” Navarro-Velasco said.

Vitro halted debt payments in February 2009 after posting derivatives losses of as much as $360 million and as demand for auto and construction glass plummeted during the U.S. recession. U.S. lawmakers have protested Vitro’s decision to include in the restructuring $1.9 billion of intercompany debt that was created 10 months after the default.

‘Highly Unorthodox’

“This highly unorthodox reorganization, which uses subsidiary company claims to cram-down third-party U.S. bondholders, would set a dangerous precedent for overseas American investments,” said U.S. Representatives Scott Garrett of New Jersey, Robert Dold of Illinois and Pete Sessions of Texas in a Nov. 18 letter to Secretary of State Hillary Clinton.

Representatives Patrick Meehan of Pennsylvania and Jared Polis of Colorado also sent a letter to Mexico’s ambassador to the U.S. on Oct. 20 criticizing use of intercompany debt.

Donald Cutler, a New York-based spokesman for noteholders that own more than 60 percent of the company’s $1.2 billion of outstanding senior notes, said in a telephone interview Nov. 4 that the arbitrator didn’t use any elements from his group’s restructuring counterproposal.

“Nothing that was presented in his plan even comes close to addressing the concerns that are addressed by the ad hoc group in what we filed in mid-October,” Cutler said.

“The noteholders intend to take all appropriate actions to defend their rights,” he said.

Dissident Proposal

The dissenting creditors proposed the issuance of $1.1 billion of new bonds, a cash payment of 10 percent of the outstanding principal of existing notes and a 61 percent stake in Vitro’s common shares.

Arturo C. Porzecanski, a professor of international finance at American University in Washington, wrote in a Nov. 14 research note that the arbitrator “does not appear to have acted in a neutral or constructive manner.”

Non-consenting creditors “are now the object of a blatantly discriminatory deal structure meant to pressure them into surrendering or face losses much more significant than those that consenting creditors will bear,” he wrote.

The company made its “best effort to try to reach a consensus through negotiations according to the company’s real capacities,” Vitro’s del Valle said in an interview on Nov. 2.

Vitro shares tumbled 29 percent this year through yesterday, compared with an 8 percent decline for the IPC Mexican stock index. The shares were unchanged at 11.2 pesos at 2 p.m. Mexico City time today.

Defaulted dollar Vitro bonds due in 2017 are trading at 70.93 cents, according to data compiled by Bloomberg. The bonds’ price has gained 23 percent this year.

--Editors: Romaine Bostick, John Lear

To contact the reporter on this story: Jonathan Roeder in Mexico City at

To contact the editor responsible for this story: Ed Dufner at

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