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Grupo Iusacell Celular, the operating subsidiary of Grupo Iusacell is two months away from concluding its Mexican court-supervised reorganization proceeding, two sources close to the situation confirmed. “It could be sooner, but that is unlikely,” one of the sources said.
Grupo Iusacell, a holding company, has concluded its Mexican court-supervised reorganization and is expected to launch an exchange for its debt by 5 June, a third source said. In their own accounting, both Grupo Iusacell as well as Grupo Iusacell Celular have cancelled their defaulted debt and report new debt figures that reflect the terms of a deal announced last year.
Once Grupo Iusacell Celular ends its ”concurso mercantil” proceeding, it will join an exclusive club of Mexican companies that have concluded court-supervised reorganizations under Mexico’s relatively new financial reorganization regime after having defaulted on their bonds.
The satellite operator Satmex, and paper company Corporacion Durango opted for Mexican court-supervised reorganizations first and then implemented deals reached with their creditors in proceedings in the US.
Other reorganizations undertaken since 2000, when Mexican lawmakers approved the new business reorganization act, took place outside the judicial system, as was the case of chemical company Cydsa, autoparts manufacturer SanLuis, and telco Alestra.
However, unlike its distressed Mexican peers, once its process has concluded, Grupo Iusacell Celular will have been the only Mexican company with a mix of secured and unsecured debt that pushed through its court-supervised reorganization proceeding solely in Mexico without a parallel proceeding taking place in US courts.
“It is an historic case,” acknowledged a lawyer who is participating in the opco proceeding. “It proves the efficiency of the Mexican Ley de Concursos Mercantiles (LCM),” he said.
The Iusacell Celular case has also shed some light on the way in which a growing number of Mexican corporate lawyers have interpreted the LCM regime, according to a second source close to the situation.
One of the questions raised by the Grupo Iusacell Celular case is “whether the trustee is active enough,” when it comes to participating in reorganizations in which bondholders’ rights are threatened, said a US lawyer who is following the case.
The other key issue is the role of related party entities in reorganizations, a third source close to the situation said.
“Whether individual claims and individual creditors are recognized and what should be the role of trustees has been a struggle for the last 10 years in Latin America and similar issues have been faced in Asia,” said another US lawyer who is following the case.
“It is unknown now if the trustee will vote for the deal,” a lawyer close to the Iusacell situation said. Grupo Iusacell Celular’s creditors must still vote on a reorganization plan so that the company can conclude its concurso process, according to the LCM.
Iusacell Celular bond trustee Wachovia will not vote against the reorganization plan presented by the company, the same person said. He added that the trustee’s previous objections to the way creditors were recognized by the court were overruled, and that Wachovia had voluntarily desisted from its objections and was not pursuing the issue.
Trustee Wachovia had not been alerted by individual bondholders of their individual suits against the issuer, and withdrew its objections once it recognized that it did not represent the bondholders as a group, a source close to the situation said.
One year ago, Iusacell’s legal strategy was called ”democracy in capitalism” by Salvador Rocha, a leading Mexican lawyer and politician who has worked with Iusacell’s controlling shareholder Mexican businessman Ricardo Salinas Pliego in at least half a dozen current and past litigation proceedings.
Grupo Iusacell and its opco were sold to Salinas Pliego in 2003 for USD 7.5m. Three years later, principal creditors of the holding company Fintech and UBS agreed to general terms of a reorganization deal that entailed a 50% haircut on their debt. Weeks later, a group of opco bondholders attempted to push Grupo Iusacell Celular into an involuntary Chapter 11 proceeding claiming unfair treatment compared to other pari-passu opco creditors. Since then, a majority of creditors have accepted terms of a deal that include significant haircuts for creditors while controlling shareholders remain whole.
Mexican reorganizations are not public proceedings and only individuals who are directly involved in the cases have access to the docket. “We may never know how the court viewed the difference in treatment of creditors in the same class or why the trustee did not stick to its guns,” said the US lawyer.
“There is no conflict of law between what the LCM says and what the trustees’ responsibilities are,” said a third source close to the situation. For the third source, the trustee fulfilled its responsibilities under the bond indenture and also under the LCM. For him, the key issue that came into play in the Iusacell Celular reorganization is that related parties are recognized creditors under the LCM and can vote for or against reorganization plans.
Usually, only preferred creditors, who in the case of Iusacell Celular were holders of bank debt, can accept or object to related parties’ petitions to become recognized creditors, the third source said.
Grupo Iusacell Celular did disclose in a court document that its financial debt had doubled since it defaulted on its debt. According to the company, bank and bond debt totaled less than USD 800m. The court overseeing its reorganization recognized an additional USD 894m of debt owed to entities related to Ricardo Salinas Pliego.
Grupo Iusacell Celular said in its year-end 2006 earnings release it has already cancelled Iusacell Celular debt comprised of USD 190m of Tranche A bank loans and USD 76m of Tranche B bank loans. Both tranches have coupons of LIBOR + 1.75 to 2.25. Grupo Iusacell Celular also said it cancelled USD 150m of 10% senior notes due in 2004.
The Iusacell operating company is preparing to exchange cancelled debt with two new issues: a USD 190m first-lien note paying LIBOR+ 400bps due 2011 and a subordinated second lien note due USD 203m bearing 10% interest.
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