Vitro SAB (VITROA), Mexico’s largest glassmaker, said it agreed to a settlement with U.S. creditors including hedge fund manager Paul Singer, ending a legal battle over debt from the company’s $1.2 billion bond default in 2009.
Fintech Advisory Inc., a Vitro financial partner, will buy creditors’ bonds with a face value of $729.2 million for 85.25 cents on the dollar and make a $57.5 million payment for fees and expenses, court documents show. Fintech will also receive a 13 percent stake in a Vitro subsidiary and a $235 million two- year note from the unit, according to a Vitro statement.
The pact followed a legal dispute that wound through courts in New York, Dallas, New Orleans and Mexico for more than two years, pitting Vitro, Fintech and the Mexican government against hedge funds including Singer’s Elliott Management Corp., Aurelius Capital Management LP and Davidson Kempner Capital Management LLC.
“These agreements allow us to close the book on a challenging period for our company,” Vitro Chairman Adrian Sada said today in the statement.
Vitro rose 5.2 percent to 32.54 pesos at the close in Mexico City. Excluding today’s gain, the shares have advanced 85 percent this year as speculation mounted that the company would reach a settlement.
Donald Cutler, a spokesman for the group of bondholders who rejected last year’s restructuring, declined to comment. While the earlier plan was approved in Mexico, it was rejected by courts in the U.S., Vitro’s largest foreign market.
The deal with creditors, which requires court approval in the U.S. and Mexico, would end all legal actions between Vitro and bondholders who spurned its 2012 restructuring, the maker of windows, car windshields and bottles said. Approval by courts and regulators is needed to complete the transaction with Fintech, which is led by hedge fund manager David Martinez, San Pedro Garza Garcia, Mexico-based Vitro said.
The glassmaker’s agreements with bondholders and Fintech would finalize its restructuring four years after the company missed $44.8 million in interest payments as losses from derivatives tied to natural-gas prices followed a slowing of sales in Mexico and the U.S.
The holdout creditors “are making out better” than those that accepted Vitro’s restructuring offer when it exited bankruptcy in Mexico last year, according to Jim Harper, director of corporate research at BCP Securities LLC, who valued the earlier deal at about 59 cents on the dollar.
Bonds issued in connection with the 2012 plan are likely to rally in the wake of the settlement as investors focus on Vitro’s rebounding business, he said.
Earnings before interest, taxes, depreciation and amortization climbed 25 percent to $105 million in the third quarter from the same period a year earlier as sales to automakers rose 13 percent and fees in connection with the debt restructuring process fell. Exports were 33 percent of sales.
“When parties that are in litigation reach an agreement, it’s a cloud that dissipates and you get to focus on the business,” Harper said in a telephone interview from Greenwich, Connecticut.
Singer and his allies rejected Vitro’s original debt swap more than a year ago, after the manufacturer used intercompany debt to become its own biggest creditor. Vitro created the intercompany loans less than a year after its bond default, as part of a reorganization in exchange for $75 million in financing from Fintech.
Vitro emerged from its Mexican bankruptcy in February last year with Sada retaining control. In June, U.S. Bankruptcy Judge Harlin Hale ruled that Vitro’s Mexican plan wasn’t worthy of enforcement in the U.S. because it absolved company subsidiaries of their bond guarantees without the units being in bankruptcy.
The U.S. Court of Appeals in New Orleans upheld the rejection, even after the Mexican government filed a brief arguing U.S. courts should respect Mexican law and provide enforcement for Vitro’s plan.
U.S. bondholders have contended that Vitro orchestrated fraudulent transfers before and during bankruptcy. The company has said it acted properly and in December it began legal action in Mexico seeking damages of as much as $1.59 billion from bondholders who sought to push it and 17 subsidiaries into involuntary bankruptcy.
“The financial restructuring of Vitro’s indebtedness has achieved its objective of creating low and sustainable leverage after a decade of high debt levels,” Fintech’s Martinez said in the Vitro statement. “Under the leadership of Adrian Sada and its focused management, the company will capitalize on its outstanding growth prospects, including those in the North American market.”
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