(The following article by John Nagel was posted on the Daily Deal website on May 22.)
MEXICO CITY — Grupo TMM SA, Latin America’s largest multimodal transport company, on Wednesday, May 21, blamed investors who refused to participate in a bond exchange for its default on $377 million in debt last week.
But the company’s chief said TMM will abide by its obligations and continue a restructuring plan under special Mexican court protection from creditors that includes the sale of assets to Kansas City Southern Railroad.
The offer, supervised by Dresdner Corporate Services, would have exchanged 2003 bonds for 2006 bonds. It was amended three times and extended five times, including a last ditch May 6 offer that would have used receipts from asset sales to pay bondholders in full and eliminate its debt.
“We were frustrated that some 2003 bondholders turned down the offer which would have paid them in full,” said TMM’s chairman and CEO Jose Serrano Segovia in an earnings conference call. “These few investors upset the process even as we have made numerous good faith proposals.”
After the unsuccessful offer, TMM on May 15 defaulted on $177 million in interest and principal on maturing bonds, and missed the interest payment on $200 million of bonds that mature in 2006. That pushed its debt rating further into junk category.
TMM then received a temporary court ruling that will protect it from creditors until the court hands down a final ruling on a TMM request for a minimum one-year “grace period.” In that time, bondholders would be prevented from forcing TMM into bankruptcy.
“We continue however, to be serious about meeting all of our obligations, and the court order is not a way for us to avoid those obligations, but is merely an effort to provide us with the time we need to reassess our options and remedies,” Serrano said.
Meanwhile, TMM continues to sell assets to raise cash and bail itself out of its debt mire.
TMM announced April 22 a deal with Kansas City Southern that will give Grupo TMM $200 million in cash and 18 million shares of Kansas City Southern common stock in exchange for 51% of Grupo Transportacion Ferroviaria Mexicana SA (TFM), Mexico’s busiest rail line. TMM could also receive an additional cash payment of up to $180 million if a tax dispute with the Mexican government is resolved.
The combined TFM, Kansas City Southern and the Texas Mexican Railway Co. would form Nafta Rail, a tri-national rail network serving trading partners Mexico, the U.S. and Canada. J.P. Morgan Chase & Co. advised TMM on the transaction, which still requires approval from several Mexican and U.S. agencies.
TMM spokesman Luis Carvillo said that TMM has already received verbal approval from the Mexican Foreign Investment Commission for the transaction.
And May 14, it announced the sale of its 51% interest in the TMM Ports and Terminals division to an affiliate of its current partner in the division, SSA Mexico for $114 million.
Once TMM is stripped of its rail and port assets, little will remain of the company, said Ismael Capistran, director of analysis with brokerage house Valmex in Mexico City. “The company will have almost nothing left,” he said. “They will have some maritime operations and some logistics and trucking operations, but little else in terms of assets.”