Vitro to Skip Payment to Save Cash, Prompting Default

Vitro SAB, Mexico’s largest glassmaker, said it will miss $44.8 million in interest payments due next week on $1 billion of bonds to preserve cash to run its operations.

Four counterparties to Vitro’s derivative investments provided notice of default, the company said in a statement to the Securities and Exchange Commission today, prompting Vitro to announce it will skip the two payments due Feb. 2.

“Vitro intends to maintain its operations and continue its business relationships with its customers and suppliers as it seeks to achieve a restructuring of its indebtedness,” the filing said.

The company ran into debt trouble because lower glass demand cut profit just as Vitro racked up losses by using derivatives to lock in natural gas prices last summer, when the fuel was hitting a high of $13.577 per million British thermal units. Gas for March delivery closed today at $4.576 per million Btu on the New York Mercantile Exchange.

Vitro sells glass windows for construction and windshields for automobiles, two of the industries hardest hit by the global recession. Glass bottler demand is also declining. Grupo Modelo SAB, Mexico’s largest beermaker, informed Vitro it would cut bottle purchases equal to 6.9 percent of Vitro’s 2009 sales.

Demanding Payment

Vitro said the unnamed counterparties demanded payment of $293 million related to the losses, creating an “event of default” under the derivative agreements.

The company said it had losses related to derivative investments of $358 million at the end of December, not counting accrued interest. Chief Executive Officer Federico Sada, a member of the controlling family, and Chief Financial Officer Enrique Osorio resigned in November after announcing the derivative losses in October.

Vitro said that 30 days after missing the payment, it will be in default of its $700 million of bonds maturing in 2017 and $300 million of bonds due in 2012. The company will also default on $216 million of notes due in 2013.

“Vitro sees this as a temporary measure to allow the necessary time to negotiate with all parties involved,” the company said in today’s statement.

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600450 Vitro to Skip Payment to Save Cash, Prompting Default
Date: 2 February 2009

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