Vitro America Creditors, IPAT Add Objections to "Deeply Flawed" Asset Purchase Agreement
May 6, 2011

This week Vitro America and its sister companies, including Super Sky International, are fielding additional objections related to the proposed sale of their assets. Both the International Painters and Allied Trades Industry Pension Fund and the creditors committee added their objections to Oldcastle BuildingEnvelope's earlier allegations of a "fast-track" sale.

However, the objection from the creditors committee goes a step further, alleging a relationship between Vitro America parent company Vitro S.A.B. and the stalking horse bidder, an affiliate of private equity firm Grey Mountain Partners.

On May 4, Vitro America creditor's committee filed an objection to the motion for bankruptcy, alleging that the debtors have failed to "properly canvas the market" in a rushed effort to sell its assets "to a proposed stalking horse bidder that may be related to, or acting on behalf of, the Debtors' parent, at a valuation that is second-best, and pursuant to a deeply flawed asset purchase agreement."

The committee alleges that there is "no justification for the fast track sales process" and that the debtors "have sufficient liquidity and the availability of DIP financing, if necessary, to allow the Debtors and the Committee to conduct an exhaustive and transparent process of determining the outcome for these cases that will maximize value for all of the Debtors' stakeholders."

According to the creditors committee, "While the Debtors may argue that the relief is not being sought on an expedited basis because the Motion was filed on a restricted basis on April 7, 2011, the reality is that the Motion was not available to parties in interest until April 27, 2011 - just nine days before the hearing." The creditors committee notes that the justification for the rush is given as being that "'each day the Debtors languish in bankruptcy, the Assets diminish in value and threaten the Debtors' viability,'" although the creditors note that current cash projections indicate Vitro America and related companies have sufficient cash to operate until at least June 10.

The IPAT objection adds its voice by noting that although it is listed as one of the company's largest 20 creditors, it "only received its invitation to the [Unsecured Creditors] Committee by mail on April 19, 2011, after the deadline for response and formation of the Committee. The present committee has no representation of employees, private benefit plans or other major creditor groups." According to court documents, that committee includes at present: Wilmington Trust FSB, as Indenture Trustee; U.S. Bank National Association, as Indenture Trustee; Aurelius Capital Management, LP; Tristar Glass Inc.; and the Pension Benefit Guarantee Corp.

The creditors committee objection further states that, "to the extent that the Debtors require additional cash to complete their restructuring at a more reasonable pace, the Committee understands that at least one alternative lender has been located who will not require the Debtors to liquidate their assets on an expedited basis. This additional time would allow the Debtors to fully explore all possible stalking horse bidders, including a transaction with American Glass Enterprises, LLC, who has presented a bid for the Assets that is economically better than that [of] the Stalking Horse Bid."

The creditors object that Vitro being a "financially constrained businesses" that simply wishes "to move through the bankruptcy process quickly" does not justify "seeking approval of a proposed sale process on a mere nine days notice."

The objection further states that as American Glass Enterprises LLC has come forward with an offer to purchase the company at a higher price than the Grey Mountain affiliate, and without a break-up fee, "the Committee is left to look for other reasons that the Debtors selected the Stalking Horse Bidder over the Alternative Purchaser." The reason the creditors committee points to is reports indicating that Vitro S.A.B. de C.V. is discussing "becoming a minority owner of the Stalking Horse Bidder if the Stalking Horse Bidder is the successful bidder at the Auction." The objection cites, among other things, a news release issued by Vitro S.A.B. on April 6 in which CEO Hugo Lara stated: "Vitro considers Vitro America a strategic business. Accordingly, we are considering participation through the sale process under Chapter 11 which could allow us to capture future value when the market experiences a recovery." The objection further notes that no such link between the stalking horse bidder and Vitro S.A.B. has been disclosed to the court. The creditors committee states that due to this "oversight," the timeline should be extended to gather additional bids, as well as "investigate, among other things, agreements that may have been reached between Vitro SAB and the Stalking Horse Bidder with respect to the ultimate disposition of the Assets."

The objection continues by noting "significant problems" with the stalking horse bidder's asset purchase agreement:

  • "Significant Downward Purchase Price Adjustments: The Stalking Horse APA contains a number of unusual one-way downward purchase price adjustments that benefit only the Stalking Horse Bidder… Although the Committee is not able to quantify the amount of these potential downward adjustments, the proposed purchase price adjustment escrow of 20 percent (or $8.8 million), which is not a limitation on the potential downward adjustments, is at least indicative of the parties' expectation that there will be a significant reduction of the purchase price as a result of the proposed purchase price adjustment mechanism.
  • $1 Million Expense Reimbursement Payable at the Closing: The Stalking Horse APA provides that the Debtors will pay up to $1 million of the Stalking Horse Bidder's expenses at the closing of the sale. This alone effectively reduces the purchase price by a further $1 million.
  • Execution Risk: The Stalking Horse APA contains a number of closing conditions and termination risks for the benefit of the Stalking Horse Bidder that are off-market and create significant closing and execution risk for the Debtors…"

Stay tuned to USGNN.com™ for updates to the case as they are made available.

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