Vitro SAB (VITROA), the Mexican glassmaker that has been fighting hedge fund Elliott Management Corp. and other creditors over its restructuring, lost an appeals court bid to enforce its bankruptcy plan in the U.S.
The U.S. Court of Appeals in New Orleans ruled against Vitro today and upheld a bankruptcy court ruling that denied enforcement of the reorganization, a result that Vitro had warned would create “chaos” for the company.
“Vitro cannot propose a plan that fails to substantially comply with our order of distribution and then defend such a plan by arguing that it would suffer were it not enforced,” the court said. “Vitro’s two-wrongs-make-a-right reasoning is unpersuasive.”
Vitro was appealing a decision by U.S. Bankruptcy Judge Harlin DeWayne Hale in June that handed a victory to holders of Vitro’s $1.2 billion in defaulted bonds. Hale refused to grant enforcement of Vitro’s Mexican bankruptcy plan, saying it was contrary to U.S. policy.
Vitro, which makes glass containers and car windshields, defaulted on $1.5 billion of debt in 2009 after construction and auto-glass sales fell. Vitro won approval for its reorganization plan in Mexico and then asked Hale to enforce it in the U.S.
Vitro fell 2.6 percent to 18.15 pesos in Mexico City trading at the market close.
Bondholders blasted the plan as a “testament to audacity, brazen manipulation and greed.” They argued the plan improperly extinguishes guaranty obligations of Vitro subsidiaries even though the units didn’t file for bankruptcy.
Vitro said in a statement that it is disappointed in the appeals court ruling and is considering “possible legal next steps in order to have our restructuring plan enforced in the U.S. as it has been in Mexico.”
“The group of highly sophisticated short-term investors who are very familiar with, and specialize in bankruptcy litigation, invested in Vitro’s distressed debt either after or shortly before Vitro announced its intention to enter a judicial restructuring process in Mexico in a calculated attempt to maximize their profits by seeking to disrupt that process and sidestep Mexican law,” the company said.
Donald Cutler, a spokesman for the bondholders challenging Vitro in court, declined to comment on the decision. Bondholders include Elliott and Aurelius Capital Management.
In the ruling, Circuit Judge Carolyn King wrote that Vitro failed to show that there existed “truly unusual circumstances” that would permit releasing the subsidiaries from debt owed to bondholders.
“We hold that Vitro has not met its burden of showing that the relief requested under the plan -- a non-consensual discharge of nondebtor guarantors -- is substantially in accordance with the circumstances that would warrant such relief in the United States,” King wrote.
The appeals is Ad Hoc Group of Vitro Noteholders v. Vitro SAB, 12-10542, U.S. Court of Appeals for the Fifth Circuit (New Orleans).
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