Santamarina y Steta’s Involvement in Matters Relating to The Global Financial Crisis

November2008

Above 80% of the total of Mexican exports go to the US, and many suppliers of the US construction and automotive industries are based in Mexico. Therefore Mexico could not escape the global financial crisis originated in the US; particularly since September 2008. Besides, the weakening of the US dollar against the Mexican peso over the past years, prior to September 2008, caused many companies to make heavy bets against the US currency either by incurring in dollar denominated debt or by entering into complex toxic derivatives, or both.

Santamarina y Steta has been heavily involved in representing some of the most notorious insolvency proceedings and restructurings going on now in Mexico. The firm represents a publicly-listed paper products manufacturer, Corporación Durango, S.A.B. de C.V. (Durango), in an insolvency proceeding, and was retained by the supermarket and retail chain holding company, Controladora Comercial Mexicana, S.A.B. de C.V. (CCM), after this company failed in its attempts to obtain bankruptcy court protection. CCM has received sizeable claims under derivatives contracts and is now pursuing an out-of-court restructuring.

The firm also represents a publicly listed conglomerate engaged in the production of auto parts and construction materials in the negotiation of an out-of-court restructuring. As part of the negotiations the company and its creditors have agreed to restructure bond issuances, grant additional collateral, etc. while preparing the defense against potential claims from certain creditors. Lawyers in several practice areas within the firm have been involved in the process.

Every one of the mentioned companies has operations on both sides of the border, Mexico and the US, and cross-border restructurings raise complicated issues involving the laws of the both countries. So, the firm has been active in the analysis of the laws and practices of the two jurisdictions to formulate a thorough strategy teaming up with foreign counsel. Durango has subsidiaries in the US which filed for protection from its creditors under Chapter 11 of the US Bankruptcy Code, and Durango itself filed a parallel proceeding under Chapter 15 of such Code for the Mexican insolvency proceeding to be recognized by a US court and protect its assets in the US from foreclosure or attachment.

The Commercial Bankruptcy Law (Ley de Concursos Mercantiles or LCM) of Mexico allows both creditors and debtors to commence voluntary and involuntary reorganization proceedings. Such a filing grants the debtor the benefit of the automatic stay which prevents law suits from continuing and creditors from attaching or foreclosing liens on key assets, while the troubled company seeks to reorganize under the supervision of the court. In accordance with a relatively recent amendment, the LCM authorizes the filing of a “prepackaged” insolvency proceeding which may prove to be a solution for troubled but otherwise healthy companies to come out of the crisis. These alternative and out-of-court restructurings may be the way to avoid the complexity of court proceedings and to save much needed jobs and investments.

Santamarina y Steta has also been actively representing a major public corporation that manufactures, distributes and commercializes automotive vehicles, as well as a corporation engaged in rendering services related to automobile, commercial and real estate financing, insurances, banking and real-estate services, in the procedures and filings carried out in Mexico with respect to the loans extended by the US Department of
the Treasury.

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