The Sadas grew rich and powerful as Monterrey, capital of the northeastern state of Nuevo Leon, emerged as Mexico’s industrial heartland. Adrian Sada became Vitro chairman in 1991, says company spokesman Roberto Riva Palacio. He paid almost $1 billion for Tampa, Florida-based Anchor Glass Container Corp. and Latchford Glass Co. in Huntington Park, California.
The timing was disastrous, coming as soft-drink makers switched to plastic. Vitro sold Anchor for $392.5 million in 1997, less than half of what it had paid. The company shed a home appliance unit and cut costs to convince investors to buy $1.2 billion of bonds in 2007.
A year later, Vitro’s sales plunged amid the global economic slowdown. Derivatives that bet on rising natural gas costs backfired as prices fell, forcing the company to shell out $85 million for margin calls. In February 2009, Vitro missed a $44.8 million interest payment on the $1.2 billion of bonds and couldn’t repay $255 million in derivatives losses.
Martinez stepped in. Fintech’s founder sat on Alfa’s board alongside Adrian Sada and had helped restructure family- controlled chemical company Cydsa SAB (CYDSASAA) in 2004. In December 2009, Fintech gave Vitro $75 million to buy the land on which company factories sit and lease it back to Vitro.
Martinez urged a complete reorganization, sparking 43 transactions in which Vitro acquired the stock of subsidiaries and exchanged debt for capital so that Vitro SAB eventually wound up owing $1.9 billion to its units. Martinez profited by gaining an option for a 24 percent Vitro stake in return for the land.
By the fall of 2010, Vitro had failed to settle with bondholders. It filed for bankruptcy protection in Mexico that December, which was finally accepted in April 2011. It also made a U.S. Chapter 15 filing, to have its reorganization recognized across the border.
In the process, Vitro used $1.9 billion in inter-company loans to vote down opposition from third-party creditors. Many of the original bondholders couldn’t stomach further machinations and sold out.
“The creditors didn’t want to go through Mexican courts,” says Brian Cullen, a managing director at Duff & Phelps Corp. (DUF) who advised bondholders. “Instead, Vitro got hedge funds that welcome litigation when they believe they’ve been wronged.”
Singer’s Elliott and New York-based Aurelius Capital Management LP piled in. The two, along with other hedge funds, including New York-based Davidson Kempner Capital Management LLC and Lord Abbett & Co. in Jersey City, New Jersey, have filed more than 300 legal challenges in Mexico alone.
In April 2011, Judge Sandra Lopez in Monterrey appointed Javier Navarro-Velasco, a partner in the local offices of Baker & McKenzie LLP, to bring the two sides together. The hedge funds weren’t interested in negotiating, Navarro-Velasco says. They wanted $1.1 billion in new bonds, a 10 percent cash payment and 61 percent of Vitro shares.
‘It Wasn’t Serious’
“It was ridiculous,” he says. “It wasn’t serious. They didn’t want to negotiate.”
At the end of October 2011, Navarro-Velasco unveiled terms that offered creditors 45 to 55 cents on the dollar. In February 2012, a court in Monterrey approved Vitro’s reorganization. Elliott and other creditors filed a more-than-600-page appeal, which is pending.
“We offered to negotiate with Elliott and Aurelius, show them our books, to have a rational discussion,” legal chief Sanchez Mujica says. “They only wanted to continue trading and continue litigating.”
To emphasize his point, Sanchez Mujica unpacks his iPad to read a quote from an interview that Singer gave to Bloomberg Markets in 2008.
“Our primary goal is to find bankruptcy situations where our ability to control or influence the process is the driver of value,” Singer said at the time. “That’s our favorite.”
After triumphing over governments and winning payouts from Lehman Brothers and Enron Corp., the master of distressed debt is on his way to adding the tenacious Mexican glassmaker to his list of wins.
Read More: Bloomberg