Category: Corporate & Sovereign Strategy

Fitch has cut Vitro to D from C and predicts a 31%-50% recovery in the event of default on the bonds, which it rates CC. This includes $300m in senior notes due 2012, $225m in senior notes due 2013 and $700m in senior notes due 2017. “The rating downgrades follow Vitro’s announcement that it will not make the payment of the certificados bursatiles VITRO 03 for approximately MXP150m plus accrued interest,” says Fitch. “The CC/RR4 rating on Vitro’s senior notes reflects average recovery prospects given default,” it adds.

Mexican officials are calling on distressed corporates and their shareholders/creditors to view the country’s concurso mercantil procedure as a safe and reliable way of resolving financial problems. “Please consider the concurso as a path to a solution for both creditors and the company,” Luis Manuel Mejan, head of the Instituto Federal de Especialistas de Concursos Mercantiles in Mexico, tells LatinFinance, speaking on the sidelines of a Chadbourne & Parke panel last week. “Creditors should remain calm and have confidence in the Mexican authorities. We have good laws and good judges,” he adds. Mejan points to Vitro as an example of a company that has handled its proceedings in a responsible manner. “Vitro is dealing with its problems in a transparent way. It’s not hiding from its responsibilities,” says Mejan. The Mexican glassmaker is in talks with counterparties to settle a $227m negative position on FX derivatives. It announced it would miss coupons in both MXP and USD, and told its creditors in the last week of January to hire counsel and organize in anticipation of a workout. However, not all are convinced that the new system works. “The jury is still out on whether you can reorganize a large multinational company in Mexico,” says Howard Seife, a partner at Chadbourne & Parke, speaking on a panel hosted by his firm last week. Among concerns for creditors facing a restructuring or potential concurso mercantil are Mexican courts’ ability to understand and process a complicated workout with fairness and predictability; creditors’ ability to keep the securitization trusts they lend to outside a bankruptcy proceeding of the ceding company; companies’ ability to gain immediate protection from creditors once they have moved to file for bankruptcy; how companies with assets in the US and other jurisdictions should file; and controlling families’ and shareholders’ influence over a company and its assets throughout a concurso.

Fitch says that although LatAm metals and mining companies could see Ebitda levels fall by more than 50% this year, default is unlikely because of entrenched cash positions. However, says Fitch, leverage and interest coverage covenants will come under intense pressure during the next 12 months and may be breached. The companies have reacted to this possibility by delaying or cutting capex projects, reducing output levels and refocusing their efforts on cash conservation. Analyst Jay Djemal says that consolidation in the industry could continue with cash-rich players taking advantage of the current financial situation to buy assets to add value to existing operations. Deals are already taking place. Vale is buying Rio Tinto’s Rio Colorado potash project in Argentina and the Corumba iron ore project in Brazil for $1.6bn in cash. Xstrata, meanwhile, is buying the Prodeco coal mine in Colombia from Glencore for $2.0bn. Also, Grupo Mexico-owned Southern Copper has purchased Frontera Copper for CAD42m in cash.

As bankruptcy filings in Mexico become more frequent and corporate restructurings soar, market participants say the country’s legal and institutional frameworks face their greatest test since 2000, when bankruptcy proceedings were rewritten. “The jury is still out on whether you can reorganize a large multinational company in Mexico,” says Howard Seife, a partner at Chadbourne & Parke, speaking on a panel hosted by his firm Friday. Among concerns for creditors facing a restructuring or potential concurso mercantil are Mexican courts’ ability to understand and process a complicated workout with fairness and predictability; creditors’ ability to keep the securitization trusts they lend to outside a bankruptcy proceeding of the ceding company; companies’ ability to gain immediate protection from creditors once they have moved to file for bankruptcy; how companies with assets in the US and other jurisdictions should file; and controlling families’ and shareholders’ influence over a company and its assets throughout a concurso. The number of bankruptcy filings doubled in Q4 2008 versus the corresponding period of the previous year, says Luis Manuel Mejan, head of the Instituto Federal de Especialistas de Concursos Mercantiles in Mexico, noting that the majority of filers are SMEs. Restructurings related to derivatives and debt rollover problems have soared, meanwhile, says Jose Maria Abascal, a partner at his eponymous law firm and one of the architects of the 2000 law. “These will all be negotiated and the company will come to agreements with creditors [outside of court],” says Abascal, adding that the primary interest is to keep companies alive and productive.

Ecuador’s government will likely to try to settle with holders of its defaulted 2012 and 2030 bonds, says Barclays in a report. The shop says it expects the settlement to include a sale of new bonds rather than a buyback. “The government probably already has a strategy for the defaulted bonds, and may launch it as soon as the bondholders of the ‘15s are paid,” it says. Ecuador has said it plans to reveal a restructuring proposal for the 2012s and 2030s after refusing to continue servicing them in December and January. Barclays expects an announcement in the next several weeks. Barclays also says the government has set February 4 as the new date of record for the 2015s, which it has agreed to continue servicing, citing a letter distributed to holders last week. This indicates “that any investors who purchase bonds today [Monday] or later will not be eligible to receive the coupon under normal settlement.”

As part of its restructuring under bankruptcy, Mexico’s Corporacion Durango says it has put Durango McKinley Paper, a New Mexico-based subsidiary on the block. A banker close to the company says Fredericks Michael, an M&A advisory shop with offices in New York and London, is advising on the sale. Durango officials were not immediately available and McKinley executives refused to comment. Durango purchased the company in 1997 for about $70m from Australia’s Amcor Packaging, according to media reports at the time. Separately Durango also says its bankruptcy court has extended the deadline for a reorganization plan for its subsidiaries Fiber Management of Texas and Paper International, to June 3. Durango needs to restructure about $1.5bn in debt.