Vitro hopes for better luck on restructuring’s second outing

13/08/2010 | Sid Verma

Mexican glassmaker's debt restructuring offer – triggered by the company's lossess on derivative contracts in 2008 – is likely to be rejected this month, as the company can afford to offer better terms

Mexican glass maker Vitro SAB’s $1.5bn debt restructuring offer is likely to be rejected by bondholders this month, and investors can get a better deal if they continue to fight, an analyst said this week.

Last Friday (August 6), Vitro’s bondholder committee rejected a restructuring offer, estimated to be worth 44 cents on the dollar. But the company said it would push ahead anyway and solicit the consent of bondholders in general in August. Analysts believe the terms offered will be effectively the same as the plan snubbed by the committee.

This involved replacing outstanding debt with: a $500m eight year bond with a coupon starting at 3% and stepping up by
1% a year; a $350m seven year partial payment in kind (Pik) note with 3% and 4% coupons in the first two years and 8% thereafter; $80m of five year convertible notes that can be automatically swapped into shares; and a cash payment of $75m.

Vitro was caught with an imbalanced hedging position on natural gas contracts in 2008, one of a wave of Mexican companies to lose money on derivatives during the turmoil of that year. The company said it would continue to seek a consensual agreement with creditors, though negotiations have been stalled since September last year.

"The consent solicitation that is to be sent out this month — if it is based on the offer already set out — will probably not be received well by the broader creditor group," said Alexander Monroy, Latin American corporate credit analyst at Barclays Capital.

He believes the company has a better ability to pay than it is claiming in its offer. Vitro is projecting Ebitda of $205m for this fiscal year, but according to Monroy its average normalised Ebitda between 2004 and 2008 was $330m.

"The offer seems to be part of a strategy to retain as much value for shareholders vis-à-vis creditors," he said. "Creditors can probably get a better deal if they continue to fight." Monroy believes Vitro could afford to pay 60-65 cents on the dollar.

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