NewsNow, USGlass April 2011

Volume 46, Issue 3 - April 2011

NewsNow

Vitro Subsidiaries File for Chapter 11, Enter Into Asset Purchase Agreement

Vitro America LLC in Memphis, Tenn., announced on April 6 that the U.S. Bankruptcy Court for the Northern District of Texas accepted a motion from it and three other U.S. indirect subsidiaries of Mexican glassmaker Vitro S.A.B. de C.V., to enter orders under Chapter 11 of the U.S. Bankruptcy Code. The subsidiaries also entered into an agreement to sell substantially all of the assets of Vitro America and Super Sky to an affiliate of Grey Mountain Partners LLC, a private equity firm based in Boulder, Colo.
The entities that requested entry of the orders for relief are Vitro America LLC; Super Sky International, Inc.; Super Sky Products, Inc.; and VVP Finance Corp.

Four Vitro SAB creditors, unhappy with a debt settlement offer, had filed a petition for involuntary bankruptcy in November 2010 against 15 of Vitro’s U.S. subsidiaries, including Vitro America. The announcement from Vitro America came just days after a federal bankruptcy judge ruled he would decide at a later, unknown date whether or not to place the companies into involuntary Chapter 11 bankruptcy. However, in the latest motion, the companies maintain that the involuntary petition for bankruptcy filed against them was unnecessary.

“The Alleged Debtors continue to assert that the Involuntary Petitions filed on November 17, 2010, were neither justified nor meritorious, legally or factually,” wrote the companies. “Nevertheless, for the economic and business reasons … Movants respectfully request that the court enter an order for relief under chapter 11 …”

The companies also are seeking authorization to obtain $30 million in debtor-in-possession (DIP) secured financing from their pre-petition lender, Bank of America, as well as an additional $7.5 million from Vitro SAB to free up liquidity under the DIP funding. According to a statement from the parent company, Vitro America and Super Sky intend to use their current cash availability and the DIP funding to fulfill their post-petition ordinary course obligations to employees, customers and trade vendors as they come due during the sale process.

“Vitro America Group has faced important challenges related to the financial crisis that began during the second half of 2008 which lead to a sharp decline in commercial construction in the United States,” says Hugo Lara, chief executive officer (CEO) of Vitro SAB. “While analysts expected a rebound in commercial construction, as of today, there are no clear signs of a recovery. As a result, Vitro America had a negative cash flow from operation in 2010. In addition, the severe negative impact of the involuntary petitions filed by certain bondholders has accelerated the deterioration of the business.”

Regarding the sale, Vitro America president and CEO Arturo Carrillo says Vitro America and Super Sky will continue to operate in the ordinary course as the process is carried out. “Based on the expectation of continued litigation related to the Vitro SAB bonds, we determined that a sale of substantially all of the assets of Vitro America and Super Sky at this time is in the best interest of these businesses, their employees and all of their other stakeholders,” Carrillo says. “Despite efforts over the last five months to mediate or have the involuntary Chapter 11 cases dismissed, it became apparent that Vitro America and Super Sky would need to be separated from any litigation related to the legal dispute between Vitro SAB and the dissenting bondholders so that we could continue to operate in the ordinary course. Fortunately, Vitro America and Super Sky have a strong asset base. In addition, Bank of America and Vitro S.A.B have continued its support of Vitro America and Super Sky throughout this challenging period and will continue to help ensure that we have adequate funding and liquidity during the sale process.”

The sale is expected to conclude within 60 to 90 days. In the meantime, Carrillo says it will be business as usual for Vitro America customers, suppliers and employees. The transaction is subject to bankruptcy court approval and other closing conditions specified in the agreement. Qualifying bidders will also have an opportunity to submit higher and better offers for evaluation through a court-supervised competitive bidding process.

However, Carrillo notes, “Grey Mountain Partners has clearly been interested in the industry” (Grey Mountain was the stalking horse bidder of Arch Aluminum & Glass’ assets in December 2009, see December 2009 USGlass, page 16). “They’ve been actually calling different people in the industry and at one point they called us. We decided a little more than a month ago that prudent contingency planning was something we should do. We reached out to our bank to talk about financing and we reached out to Grey Mountain Partners.”

Despite all confidence in going forward, and all planning that has come before Carrillo notes that the upcoming asset sale has been difficult to process.

“I’ve got to say, it was always a contingency plan, and it was always easier to talk about contingency planning—but we never really thought this would happen, to be honest. We’ve been acquiring companies, we’ve been investing and we’ve been launching new product lines. We got caught in the crossfire. This has never been about us, it’s always been a Vitro SAB
bondholder issue that, unfortunately, we got dragged into,” Carrillo says.

Japanese Glass Companies Recover from Earthquake
The earthquake that struck the coast of Japan on March 11 devastated much of the country. Cities and towns were destroyed, and the World Bank has estimated that rebuilding will cost more than $230 billion.

The country is slowly working to recover and so, too, are two of the world’s largest float glass manufacturers—Nippon Sheet Glass (NSG), which owns Pilkington North America, and Asahi Glass Co. (AGC), parent of AGC Flat Glass North America, both based in Japan. Both companies were affected as a result of the earthquake and are now working to recover.

NSG reported on March 14 that none of its employees were missing or injured. At its plant in Ichihara, Chiba prefecture, the company confirmed that none of the three glass furnaces there sustained any significant damage. “The operations of these three furnaces were suspended immediately after the earthquake, but we are now working to resume operations one by one,” said a statement from NSG.

As far as NSG’s other sites in the Tohoku (Northern) and Kanto (Eastern) regions, none of its facilities and equipment sustained any significant damage at the sites in the affected regions. Due to power outages, however, some operations at press time were being suspended at some of these locations. The company added that there have been damages to glass stock in warehouses and at sites in the affected area.

NSG reported that the potential financial impact of the earthquake on its performance is still unknown. “However, if circumstances arise that call for any change to our current financial outlook, we will implement timely disclosure,” NSG said.

Kazuhiko Ishimura, president and chief executive officer of Tokyo-based AGC, also issued a statement on the impact that the earthquake has had on AGC operations. In its March 14 news release, Ishimura noted, “It has been reported that several employees have been slightly injured.”

A number of the company’s facilities were heavily affected by the earthquakes and tsunamis. Among them, the AGC Kashima float glass plant in Kamisu, Ibaraki, that supplies architectural flat glass was partially damaged. Production operations were suspended following the earthquakes and, as of press time, were expected to resume in approximately one month. The loading berth used for the shipments of architectural float glass and the receiving of raw materials was damaged, and it is expected to take time to restore the facility.

Production also was suspended at some of the plants for architectural processed glass in the Tohoku/North Kanto region due to the damage to facilities or raw materials (i.e. flat glass), or employees not being able to go to the plant. At press time, it was not clear when operations would resume.

Ishimura also provided an outlook concerning shipments. For glass products, until the operations of the AGC Kashima plant resume, AGC will allocate existing inventories and shipments from its other plants in and outside the country and “make the utmost effort to prevent a supply shortage of architectural glass.”

The company says that in consideration of the ongoing serious electricity shortage, the AGC Group will cooperate in the nationwide electricity-saving efforts by reducing electricity use and implementing operation adjustment at its plants.

While reconstructing the areas of Japan impacted by the earthquake and tsunamis will be costly, news reports also note that, thanks to the country’s stringent building codes, damages were far less than what they could have been. Since the Kobe earthquake in 1995 Japan has invested heavily into new research on protecting structures, as well as retrofitting the country’s older and more vulnerable structures. A New York Times report pointed out that extra steel bracing, giant rubber pads and embedded hydraulic shock absorbers make modern Japanese buildings among the sturdiest in the world.