Latin Finance - March/April 2012 - 50

Mexico restructuring

The Good, Bad and the Ugly
by Mariana Santibáñez exico’s Vitro appears to have won a protracted and bitter war with holdout creditors after a local court ruled earlier this year in favor of the troubled glassmaker’s unpopular restructuring plans. The results not only have the buyside up in arms, but could carry broad implications for other Mexican high-yield names seeking to raise money abroad. Fixed-income investors are now vowing to take a closer look at the country’s junk names and threatening to charge a “Vitro” premium going forward while also keeping a close eye on other companies that have recently struggled under the weight of heavy debt loads such as cement maker Cemex. “What Vitro is doing really puts Mexican companies in a very negative light and as a buyer I’m going to be much more careful and demand a premium given the many loopholes in the Concurso Mercantil framework,” Vitro’s restructuring: half empty or half full? says Jack Deino, senior portfolio manager at Invesco, which manages holding level backed by guarantees from its foreign subsidiaries. $1.6 billion in EM assets. Cemex declined to comment. At issue was whether Vitro broke Concurso rules by using The treatment of inter-company claims has been a lingering $1.9 billion of inter-company debt incurred subsequent to issue in bankruptcy cases in Mexico, but few if any of the its 2009 default to achieve a majority vote in restructuring negotiations. In this sense it looks like Vitro has been vindicated. country’s recent restructurings have created such a vitriolic backlash. But perhaps more importantly Vitro’s court victory leaves By itself, the glassmaker’s perspective seems straight forward many experts saying that Mexico’s insolvency law, Ley de enough. It used local laws to defend itself from what it sees Concurso Mercantil (LCM), needs to be rethought just 12 years as predatory vulture funds at a time when it was struggling to after its creation and five years since it was last updated. survive in the wake of its $1.2 billion debt default in 2009. “The Mexican insolvency regime has been put to the test Using inter-company debt at the subsidiary level to push by the creditor-unfriendly precedent that Vitro S.A.B. is trying through a restructuring plan may not be popular, but it is legal to set,” says Arturo Porzecanski, economist-in-residence at under Mexican law, the company says. “We use inter-company the School of International Service at American University in debt as done in any other types of restructurings and we did Washington and expert in Latin American economics. not do anything the law did not want us to do,” Vitro’s chief Porzecanski adds the precedent would weigh more heavily restructuring officer Claudio Del Valle tells LatinFinance. on the minds of Cemex bondholders and other risky Mexican However, this hasn’t sat well with the broader investor base, corporations. He adds Cemex has a similar debt structure at the

Vitro appears to have won a shootout with creditors over its restructuring plans, but longer-term questions remain over Mexico’s Concurso Mercantil system.

50 LatinFinance

March/April 2012

Latin Finance - March/April 2012

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