Involuntary Chapter 11 Case Against Vitro America and Subsidiaries Continues; Company Officials are Optimistic in Light of Recent Court Decisions
November 29, 2010

An expedited hearing was held last week in the recently filed involuntary Chapter 11 case against Vitro America and its subsidiaries. Vitro officials say the court has made several decisions in its favor, including the denial of a motion by the bondholders who filed the case seeking to restrict the U.S. subsidiaries' ability to enter into transactions with their non-U.S. affiliates or participate in Vitro SAB's planned restructuring and concurso proceeding in Mexico.

Binswanger is among the Vitro America subsidiaries included in the filing.

The dissident minority bondholders, who together hold approximately 6 percent of Vitro SAB's outstanding U.S. bonds, had filed the motion after commencing the involuntary cases on November 17, according to Vitro.

In addition, the court has approved a motion by Vitro's U.S. subsidiaries for continued financing with their lender, Bank of America, and granted in part a motion authorizing the U.S. subsidiaries to obtain additional financing from their ultimate parent, Vitro SAB, according to the company.

"In denying the motion of the petitioning bondholders in its entirety, the U.S. Bankruptcy Court found the petitioning bondholders' requested restrictions on the use of property by Vitro's U.S. subsidiaries to be impermissibly vague, overbroad and not supported by the evidence put forth by the bondholders," writes Vitro in a statement released today. "Additionally, the court found that the petitioning bondholders failed to provide legal justification for restricting the U.S. subsidiaries' ability to vote or participate in a subsequent restructuring of Vitro SAB in Mexico at this time."

The company adds, "The court's decision underscores that the dissident minority bondholders' actions against the U.S. subsidiaries are premised on baseless allegations and truly aimed at disrupting Vitro SAB's ongoing restructuring process. Vitro SAB expects these bondholders to continue seeking to challenge and delay its planned concurso proceeding in Mexico (including continued efforts against its U.S. subsidiaries), but it is fully prepared to face such challenges and is confident that it will emerge from its concurso proceeding a healthier and more stable company for the benefit of all stakeholders."

In addition, Vitro America officials say the court approved its request for an order approving its continued working capital financing with Bank of America on unchanged terms and for to incur additional indebtedness from Vitro SAB, "but only on an unsecured basis at this time, leaving the door open for a secured intercompany loan in the future if it can be shown that necessary funding is not otherwise available."

"We are pleased that the bankruptcy court has acted with restraint in responding to the baseless and disruptive requests of the dissident minority bondholders," says Claudio Del Valle, chief restructuring officer for Vitro SAB.

Vitro SAB officials say they continues to expect that both its tender offer and its exchange offer and consent solicitation will be concluded successfully and that any issues raised by the ad hoc bondholder group will be resolved.

"We strongly encourage bondholders to objectively analyze the terms and conditions of the tender offer, and the exchange offer and consent solicitation," adds Del Valle, "and we also urge each of them to respond to both offers promptly."

At press time the U.S. District Court for the Northern District of Texas had not yet released orders from the hearing and currently the hearing transcript is sealed.

Vitro America and its subsidiaries had filed an objection early last week to the bondholders' motion that their use of property be restrained.

"The dissident minority noteholders … have unjustifiably imposed on this court by hauling the alleged debtors into court on shortened notice to address, on an emergency basis, their supposed concern with the leakage of the alleged debtors' asset value outside the United States," writes the company. "The simple fact is there is no emergency that requires action by this court."

Vitro America officials go on to call the motion "a thinly veiled attempt by a group of disgruntled minority creditors to use the involuntary chapter 11 process to interrupt the valid and consensual restructuring under Mexican law of a Mexican company that is not before this court."

"Were the court to grant the relief sought by the motion, it would only condone the dissident minority noteholders' abuse of the bankruptcy process and permit them to exercise undue influence and gain leverage in the current restructuring process," writes the company. "Indeed, the only logical reason that the dissident minority noteholders have commenced involuntary cases against the alleged debtors and filed the motion is because they believe that Vitro SAB's proposed restructuring will ultimately be supported by a majority of its creditors and be consummated under Mexican law. To the extent that the dissident minority noteholders dislike Vitro SAB's proposed restructuring, they can exercise their bargained-for rights and express their displeasure through their votes, but they must not be allowed to attack Vitro SAB's restructuring through an abuse of the bankruptcy process in the United States."

The suit was filed by four creditors: Knighthead Master Fund LP in New York, with a claim of approximately $42 million in senior notes; Brookville Horizons Fund L.P. in Greenwich, Conn., with a claim of $2 million in senior notes; Davidson Kempner Distressed Opportunities Fund LP in New York, with a claim of approximately $11 million in senior notes; and Lord Abbett Bond-Debenture Fund Inc. in Jersey City, N.J., with a claim of $20 million in senior notes. They own approximately $75 million (about six percent) of the Mexico-based company's debt.

Vitro America and its subsidiaries are represented by Fulbright & Jaworski LLP of Dallas, Milbank, Tweed, Hadley & McCloy LLP of New York and Andrew M. Leblanc of Washington, D.C.

Neither John Cunningham nor Richard Kebrdle of White and Case LLP, spokespeople for the bondholder group, could be reached for comment at press time.

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