Fifth Circuit Rules Against Vitro Appeal
November 29, 2012

by Casey Neeley,

The Fifth Circuit Court of Appeals in New Orleans handed down an opinion yesterday affirming the original ruling denying Vitro SAB's use of a Mexican bankruptcy restructuring plan.

"We observe that many of the factors that might sway us in favor of granting comity and reversing the bankruptcy court to that end are absent here," reads the court document. "Vitro has not shown that there existed truly unusual circumstances necessitating the release. To the contrary, the evidence shows that equity retained substantial value."

In the document, the court affirms the original ruling based on what it says was a lack of substantial argument in favor of Vitro.

"Vitro cannot rely on the fact that a substantial majority of unsecured creditors voted in favor of the Plan," says the court in the document. "Vitro's majority depends on votes by insiders. To allow it to use this as a ground to support enforcement would amount to letting one discrepancy between our law and that of Mexico (approval of a reorganization plan by insider votes over the objections of creditors) make up for another (the discharge of non-debtor guarantors)."

Court officials further write, "Vitro argues that there would be financial chaos as a result of the Plan not being enforced. We are aware of the adverse consequences that may ensue from the decision not to enforce the Plan. But Vitro's reasoning seeks to justify a prior bad decision on the basis that not enforcing it now would lead to further negative consequences. Worse, the harm from those consequences would predominantly affect Vitro, the party responsible for bringing about this state of affairs in the first place. Vitro cannot propose a plan that fails to substantially comply with our order of distribution and then defend such a plan by arguing that it would suffer were it not enforced. Vitro's two-wrongs-make-a-right reasoning is unpersuasive."

"We are disappointed by the Fifth Circuit Court's decision in this matter," says Claudio Del Valle, Vitro's chief restructuring officer. "The refusal to reverse the Bankruptcy Court's decision and enforce Vitro's Mexican restructuring in the U.S. is contrary to prior Mexican restructurings, which have been recognized and enforced in the U.S. without exception, including several restructurings which were very similar to Vitro's in their treatment of intercompany claims and modification of non-debtor subsidiary guarantees."

"While we analyze the circuit court's ruling and consider our possible legal next steps in order to have our restructuring plan enforced in the U.S. as it has been in Mexico, we are also prepared to continue serving our U.S. customers due to the fact that our main subsidiary is protected by a separate and distinct Concurso proceeding," adds Del Valle.

A statement released by Vitro says, "Vitro's financial restructuring was fully consistent with Mexican law, which has been consistently recognized and respected in the U.S. legal system. The dissident funds' attack on the use of intercompany debt in Vitro's financial restructuring is simply an attempt to create an appearance of impropriety using baseless accusations."

In February 2009, the Mexico-based manufacturer defaulted on more than $1 billion in bonds. Vitro completed a Mexican court approved debt restructuring plan this past February. A Texas court ruled against enforcement of the reorganization in the U.S. in June which led to the appeal decided on yesterday. Mexican officials showed their support of the appeal by filing Amicus Curiae with the Fifth Circuit. Additionally, Mexico's Second Circuit Court in Monterrey ruled in favor of Vitro this past Friday, upholding the legitimacy of the company's restructuring under Mexican law.

According to its statement, Vitro is "reviewing legal alternatives in response to [the] ruling."

Donald Cutler, spokesperson for the bondholders represented in the case, had not responded to request for comment at press time.

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