Vitro defaults on derivatives, plans to skip Feb. 2 notes payments to preserve cash

By Caroline Salls

Pittsburgh, Jan. 29 - Vitro, SAB de CV has received notices of default and payment demands from four of the counterparties to its derivative financial instruments in connection with the company's failure to make a total of $293 million in payments, according to a company news release.

In light of the default notices and in order to preserve the necessary cash to continue operations, the company said it does not intend to make the $12.9 million and $31.9 million interest payments due Feb. 2 on its 8 5/8% senior notes due 2012 and 9 1/8% senior notes due 2017.

The company will have 30 days to make the interest payments before non-payment triggers an event of default.

Vitro said the events of default under the derivative agreements also trigger an event of default under the company's 11¾% senior notes due 2013.

In addition, the failure of the company to make the payments due under the derivative financial instrument agreements constitutes events of default under $81 million of other financing agreements.

The company said it is also in default under $17 million in loan agreements.

Vitro said it intends to maintain its operations and continue its business relationships with its customers and suppliers as it attempts to restructure its debt.

As of Dec. 31, the company had $103 million of unrestricted cash on hand and cash equivalents for operating costs and expenses.

As previously reported, Vitro has launched discussions with the counterparties, its bondholders and its creditors to achieve an organized financial restructuring to improve its balance sheet, and it continues to analyze its alternatives in regard with the derivative agreements.

The company said it has also adopted a significant and focused cost reduction plan, which includes reducing its workforce, canceling airplane leasing contracts, divesture of non-productive assets and eliminating the outsourcing of non-strategic services.

These initiatives, as well as those aimed at reducing operating costs, drastically reducing corporate expenses and improving efficiency, are expected to result in $80 million to $120 million in annual savings.

Vitro is a Nuevo Leon, Mexico-based glass manufacturer.

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