Vitro’s Cracks Get Bigger

Mexican Glassmaker Vitro is edging closer to becoming the next Mexican distressed story, following the decline of CCM and paper producer Durango. As its 8.625% 2012 and 9.125% 2017 bonds trade at the 25-26 level, according to Credit Suisse, Moody’s and Fitch have placed their B2/B ratings on review for downgrade, and JPMorgan says it expects Vitro to seek protection. “We see the company more than likely seeking protection from creditors under the Mexican Reorganization Act,” JPMorgan says, seeing a recovery rate between 20%-30% on the company’s 2012, 2013, and 2017 bonds. The shop does, however, move its rating to marketweight from underweight, based on current market prices relative to base case recovery estimates. “The rating actions reflect increased pressure on Vitro’s liquidity and financial flexibility following the company’s recent announcement of a $227m marked-to-market loss on its derivative instruments,” Fitch says of its ratings move, adding that unwinding the positions should increase leverage. The action also reflects the current volatility in the financial and credit markets, as well as a more challenging operating environment due to lower economic growth prospects in Mexico and other regions where Vitro has a presence. It was facing $123m in amortizations this year as of mid-year, with $28m due in 2009. Vitro said this week that it continues to negotiate with creditors, and has announced expenditure reductions in an effort to maintain liquidity. It may provide more information about the negotiations when announcing earnings on Tuesday.