INSOL International Mexico City Seminar Thursday 22 April 2010

1. INSOL International Mexico City Seminar Thursday 22 April 2010

2. Welcome Bienvenida e inauguración Howard Seife Chadbourne & Parke LLP Board Director, INSOL International

3. Seminar Chair Presidente del Seminario Jorge Sepúlveda Bufete García Jimeno, S.C.

4. Organising Committee / Comité de Organización • Jorge Sepúlveda, Bufete Garcίa Jimeno S.C., Presidente • Thomas Heather, Heather & Heather, Copresidente Educacional • Howard Seife, Chadbourne & Parke LLP, Copresidente Educacional • Adam Bryk, Deloitte, Copresidente Sponsor • Jaime Guerra González, Guerra González Abogados, S.C. Copresidente Sponsor • Henri Bricard, Bricard, Egure y Espindola Asociados, Copresidente Marketing • Antonio Silva Oropeza, Instituto Iberoamericano de Derecho Concusal, Copresidente Marketing

6. Group of Thirty-Six El Grupo de Treinta y Seis Jones Day Kaye Scholer LLP Kirkland & Ellis LLP KPMG LLP Linklaters LLP Lovells LLP Norton Rose LLP Pepper Hamilton LLP PPB PricewaterhouseCoopers RSM Corporate Advisory Services Skadden, Arps, Slate, Meagher & Flom LLP Shearman & Sterling LLP Vantis Weil, Gotshal & Manges LLP White & Case LLP Zolfo Cooper LLP AlixPartners LLP Allen & Overy LLP Alvarez & Marsal LLC Baker Tilly Begbies Global Network Bingham McCutchen LLP Cadawalader, Wickersham & Taft LLP Chadbourne & Parke LLP Cleary Gottlieb Steen & Hamilton LLP Davis Polk & Wardwell De Brauw Blackstone Westbroek Deloitte Ernst & Young Ferrier Hodgson Freshfields Bruckhaus Deringer Goodmans LLP Grant Thornton Greenberg Traurig LLP Huron Consulting Group

7. Housekeeping • No Smoking • Coffee Breaks and Lunch – timing • Mobile telephone & Blackberry switched off • Assessment forms – completion & return

8. Cross-border proceedings Procesos transfronterizos Preside: Thomas Heather Heather & Heather The Honorable Samuel Bufford US Bankruptcy Court Brock Edgar FTI Consulting Bill Govier Bingham McCutchen LLP

9. Cross-border proceedings Thomas S. Heather Heather & Heather

10. Cross-border insolvencies: an overview 2008-2009, International financial crisis of unprecedented proportions. Particularly in Mexico, a handful of important cross-border insolvencies developed into precedent setting matters. Concurso Mercantil: 10 years under a “new” law External factors and failure to address key structural reform, (taxes, labor, antitrust, telecomunications, security) may lead to more cases.

11. Critical factors must be considered in answering basic questions: Are creditors/debtors treated equally? Has progress been substantial? Is Chapter II an alternative for Mexican/Latinamerican debtors? When? What are the liabilities to management and to the board? Is Mexico/Latinamerica competitive? Is there an effective international cooperation among our tribunals?

12. Overview Comparison of Mexican Concurso Mercantil to US Chapter 11Bill GovierBingham McCutchen LLP

13. Topics For Discussion • Overview • The Players • Commencement of a Case • Key Issues • Treatment of Certain Claims • The Creditors’ Voice • Establishing a Claim • The Plan • Conclusion

14. Overview • Primary Goals the Same: • Owners and Management Can Preserve a Going Concern, and Restructure Debts and Operations, with the Support of Most Creditors, While Binding Dissenting Creditors • Major Policy Differences: • Chapter 11 Can Also Impose a Change of Control of the Restructured Going Concern, Concurso Cannot • Equity is “Just One More Constituency” in Chapter 11, but in Concurso, Equity Enjoys Veto on the Reorganization • Chapter 11 Can Impose a Restructuring on Secured Creditors Without Their Consent, Concurso Cannot

15. Mexico Proceedings Debtor Judge Secured Lenders (not required to participate) Unsecured Bonds Trade Claims Visitador (examiner) Conciliador IFECOM (Instituto Federal de Especialistas de Concursos Mercantiles) Interventor Government Entities (Taxing Authorities, Attorney General, etc.) The Players U.S. Proceedings • Debtor/ Debtor-in-possession • Judge • Secured Lenders • Unsecured Bonds • Official Committee of Unsecured Creditors • Other Committees • Trade Claims • Landlords • Other “parties in interest” (SEC, unions, etc.) • Foreign Representative (in chapter 15 cases) • United States Trustee

16. U.S. Proceedings Voluntary petition Involuntary petition No insolvency requirement for voluntary petition Mexico Proceedings Voluntary petition Involuntary petition Insolvency requirement IFECOM appoints Visitador who reviews the debtor’s books and records and issues a report within 15-30 days on whether debtor is insolvent Commencement of a Case

17. U.S. Proceedings Automatic stay halts efforts by secured and unsecured creditors to collect prepetition debts Relief from the stay is available, for cause if the debtor has no equity in property that is not needed for reorganization, or failure to compensate secured creditor for declines in collateral value Automatic stay is a central component of forcing creditors to stay at the table Mexico Proceedings Court issues “Declaration of Insolvency”, which will date back to the filing date and act as a “stay” Stay is valid as against secured and unsecured creditors during the “conciliation phase” (185 days + up to 2 potential extensions of 90 days each) Limited opportunity for relief from the stay during conciliation phase Commencement of a Case: (cont’d)Stay

18. U.S. Proceedings Debtor-in-possession financing (“DIP financing”) is encouraged, and is given super-priority status Existing secured lenders often use it to shore-up or protect their position, and impose restraints on operations Mexico Proceedings Theoretically available, but no specific mechanism Lack of post petition loans can be a major impediment to seeking Concurso protection Key IssuesPost Petition Borrowing Adequate Protection U.S. Proceedings • Interim payments during proceedings to secured creditors to compensate for diminution of value of collateral during the case Mexico Proceedings • No interim payments during proceedings, limited opportunity to protect against decline in collateral value absent special Court permission to foreclose

19. U.S. Proceedings Debtor may assume, assume and assign, or reject executory contracts as it sees fit, may “pick and choose” Key flexibility to restructuring the operations of the debtor Mexico Proceedings General rule is that debtor must continue to comply with contracts, unless the Conciliador objects or rejects the contract Can be an impediment to a restructuring of operations Key Issues (cont’d)Status of Executory or Partially Performed Contracts Substantive Consolidation Mexico Proceedings • Not permitted; although related party filings handled by same judge U.S. Proceedings • Multiple debtors may be combined into one “estate” for purposes of calculating assets and liabilities

20. U.S. Proceedings Fraudulent transfers: Two year look back period Debtor-in-possession or trustee may file action to avoid certain transfers Preferences: 90 day look back period on existing debt; 1 year look back period for insiders Key Issues (cont’d)Preference/ Fraudulent Transfers Mexico Proceedings • Court may invalidate transactions made within 270 day period before Declaration of Insolvency that are made with intent to defraud, or are otherwise gratuitous or at a discount • Interventor can extend 270 day period to up to 540 days • Presumption that certain transactions made during look back period were made in attempt to defraud of creditors, unless debtor shows good faith

21. U.S. Proceedings Secured claims Continue to accrue interest (including default rate) up to value of collateral Can be impaired and compromised under a plan of reorganization so long as recovery value of restructured claim equals or exceeds the value of the collateral Priority unsecured claims Typically includes administrative expenses, taxes, and wages “Super priority” for DIP financing; trumps almost all else Mexico Proceedings Secured claims Continue to accrue interest (not including default rate) up to value of collateral (remainder is unsecured claim) If secured creditor agrees to restructure in Concurso, paid pursuant to agreed Convenio Cannot be forced to restructure in Concurso, pre-Concurso liens and rights ride through the proceeding unimpaired, and must be honored in full after Convenio finalized Priority claims Costs of administration, taxes, wages, and unsecured claims with attachments under Mexican law Treatment of Certain Claims

22. Mexico Proceedings Unsecured claims Cease to accrue interest Converted into UDIs (Unidades de Inversión) If denominated in foreign currency, converted first to pesos, then to UDIs - currency risk issues here Before filing, unsecured creditors with obligations under Mexican law may seek attachment of assets Treatment under concurso is governed by consensual decision of 51% of the claims Treatment of Certain Claims (cont’d) U.S. Proceedings • “General” unsecured claims • Cease to accrue interest • No adequate protection right • Can be impaired and compromised under a plan of reorganization • Receives all plan value after secured recoveries, and if not paid in full, can force a conversion of debt to equity, and wipe out all of the shareholders, and elect a new board

23. U.S. Proceedings Official Committee of Unsecured Creditors: Appointed by the US Trustee (usually 5-7 largest creditors) Consults with debtor Receives confidential information from debtor Fiduciary for all unsecured creditors Paid for by the debtor’s estate Additional official committees: Court may appoint or US Trustee may recommend All expenses paid for by estate No secured creditor committees Mexico Proceedings No official committees Creditor(s) representing ten percent of “recognized credits” may request the court appoint an Interventor Representative of appointing creditor(s); not a fiduciary Fees paid for by the requesting creditor(s) “Recognized creditors” vs. unrecognized creditors Only “recognized creditors” may appear before the court or file pleadings Individual bondholders not expressly recognized (unless they individualize their claim) Indenture trustee recognized (as long as it files a proof of claim) The Creditors’ Voice

24. U.S. Proceedings Bar date Claim allowed unless debtor or party in interest objects Those who file a proof of claim are subject to the jurisdiction of the bankruptcy court and allowed to vote on the plan of reorganization Bankruptcy court may estimate a claim for voting purposes or for allowance purposes Typically, indenture trustee files proof of claim on behalf of all bondholders, but individual bondholders retain right to vote Mexico Proceedings To be a “recognized creditor”, must file proof of claim within certain time period after insolvency judgment published 20 days for Mexican creditors 45 days for foreign creditors Conciliador files provisional list of creditors and claims, then final list Court reviews and publishes a “Final List of Recognized Credits” Right to vote is separate from recognition as a “recognized creditor” May need to file separate “voting writs” Establishing a Claim

25. U.S. Proceedings Debtor has 120 day exclusivity period to file a plan, but often extended by the court, up to 18 months maximum Requires filing of disclosure statement containing adequate information Plan of reorganization details creditor classification and treatment Impaired classes vote on plan; one “impaired class” must vote in favor of plan Acceptance = consent by 2/3 in amount of claims and more than 50% in number (of claims actually voted) Absolute priority of claims, and potential cramdown The Plan Mexico Proceedings • Concurso Mercantil (2 stage process) • Insolvency test requirement • Stage 1: Conciliation • 185 days, extension for two additional 90 day periods with certain approvals • Stage 2: Liquidation (quiebra) • If consensual reorganization not reached within 365 days • Convenio Concursal not voted on, signed • Presented first to Concilador for review and approval before filed • Acceptance = consent by more than 50% of allowed unsecured claims • Debtor must agree to and sign the Convenio • Participating secured creditors may agree to treatment pursuant to Convenio, nonparticipating secured creditors ride through Concurso • Court issues notice of approval after 5 day objection period. 9 days after notice, Convenio approval order is final • New pre-pack provisions (2007) • Filing, signed by debtor & creditors representing 40% of debtor’s credits, and debtor declaration required

26. Conclusion:Practical Considerations • Chapter 11 More Useful at Changing Operations and Cash Flow of Operating Companies • Many Mexico Operating Companies or Subsidiaries Cannot Make It Through a Concurso • Chapter 11 Creditors’ Committee Hires Advisors Paid For by the Estate, Not the Personal Creditors -- Can be a Major Factor, Positive or Negative, Depending on Where You Sit • Convenio Can Be Much More Flexible and Favorable, From Debtor Viewpoint, as to Classification, Treatment, and Voting of Claims • Convenio Cannot Force Secured Creditors to Agree to Less Than Full Payment, While a Chapter 11 Plan May Cramdown Dissenting Secured Creditors • Equity Cramdown is a Major Differentiating Factor, and Again, Positive or Negative Depending on Where You Sit

27. Cross-border proceedings Brock J. Edgar FTI Consulting

28. What happens after default? Initial reaction of foreign creditors is often to consider filing an involuntary insolvency proceeding Mexican involuntary proceedings typically take 7+ months to gain traction Practically, the main reason to file an involuntary proceeding in Mexico is to get the debtor to file a Mexian voluntary proceeding

29. USA or Mexican Proceeding? Creditors always consider filing Chapter 11 to obtain USA jurisdiction over a Mexican Company Efforts are unlikely to ever succeed given that the Mexican statue states that a Mexican company’s reorganization is governed by Mexican law (Concurso Mercantil) However, this is sometimes an effective tool to get the Mexican company to file voluntarily in Mexico

30. What type of Company can file? Basically all companies are eligible but on a practical basis: Operating companies cannot file and survive as there is: No critical supplier concept that can be implemented immediately No debtor-in-possession financing on a practical basis Therefore the Concurso Mercantil law is mainly useful for holding companies

31. Individual or Consolidated Cases? The concept of a consolidated filing does not exist in Mexico – each individual company has its own estate

32. Who are the Creditors? All liabilities of the company are creditors Third party debt Intercompany debt Suppliers Employees While there is “superior” treatment for secured creditors all other creditors receive pari passu treatment unless they agree to receive worse treatment

33. Cross-Border Proceedings Hon. Samuel L. Bufford US Bankruptcy Court – Los Angeles (C.D. Cal.)

34. Sale of Assets under § 363 in Multinational Case • If done in a chapter 15 case, limited to assets within US territorial jurisdiction • US chapter 11 case – no such limitation • Comity concerns apply

35. Sale of Assets under § 363 in Multinational Case • Court must strike balance between debtor’s ability to sell assets and constituents’ rights to vote on a plan • Some articulated business justification required • May not be a sub rosa plan or attempt to circumvent plan confirmation requirements

36. Sale of Assets under § 363 in Multinational Case • Factors • the proportionate value of the asset to the estate as a whole • the amount of elapsed time since the filing • the likelihood that a plan of reorganization will be proposed and confirmed in the near future • the effect of the proposed disposition on future plans of reorganization

37. Sale of Assets under § 363 in Multinational Case • Factors • the proceeds to be obtained from the disposition vis-a-vis any appraisals of the property • which of the alternatives of use, sale or lease the proposal envisions • whether the asset is increasing or decreasing in value.

38. Hearing – first day motions • Evidence of notice to major creditors • Some will normally attend hearing • Presentation of case • May require oral testimony • Setting timetable for case

39. Hearing – first day motions • Motions – typical for US • Use of cash collateral • Paying prepetition wages • Post-petition financing • Cash management system • Utilities

40. Hearing – first day motions • Main Point – to have the judge become involved in the planning and scheduling of the case

41. Equality of Arms • Principle of “fair legal process” • Derives from European Convention on Human Rights • Applied in European Court of Justice in bankruptcy cases _ Eurofood

42. Equality of Arms • Right to a full and fair opportunity to present facts of one’s case to the court • Right to present one’s legal arguments to the court • Right to comment on evidence and legal arguments of opponent

43. Cross-border proceedings Procesos transfronterizos Preside: Thomas Heather Heather & Heather The Honorable Samuel Bufford US Bankruptcy Court Brock Edgar FTI Consulting Bill Govier Bingham McCutchen LLP

44. Procedimientos con plan de reestructura (Pre-packs) Preside: Jaime Guerra González Guerra González Abogados Mark Bloom Greenberg Traurig P.A. Richard Cooper Cleary Gottlieb Steen & Hamilton LLP Luis Enrique Graham Chadbourne & Parke LLP

45. Prepackaged Plans Under U.S. Bankruptcy Law Richard J. Cooper Cleary Gottlieb Steen & Hamilton LLP

46. Prepackaged Plans in U.S. Bankruptcy: Overview • In a prepackaged bankruptcy, creditors of a distressed company arrive at a mutually acceptable reorganization plan with the debtor prior to the commencement of the Chapter 11 case • A conventional Chapter 11 case can take a long time (often more than 18 months) • A prepackaged bankruptcy shortens the plan process by allowing the debtor to enter Chapter 11 having already formulated and negotiated a plan with creditors (and in the case of a true prepackaged plan, as opposed to a prenegotiated or prearranged plan, having solicited sufficient acceptances for the plan) • Prepackaged bankruptcies also offer debtors greater flexibility than out-of-court restructurings because of the ability to bind a dissenting minority of creditors

47. Prepackaged Chapter 11 Plans: Advantages to Debtors • Speed • Expedite reorganization and exit from Chapter 11 • Cost • Minimize typical expenses and deterioration in business associated with protracted Chapter 11 proceedings • Control • Minimizing amount of time in Chapter 11 reduces influence of court and creditor constituencies • Creditors are less likely to force the debtor to replace company executives • Ability to bind a dissenting minority of creditors • In order to block plan approval, dissenting creditors must constitute at least 1/3 of the face amount of the class of claims being impaired under the plan (and even then, cramdown is a possibility)

48. Prepackaged Chapter 11 Plans: Advantages • Unlike out-of-court restructuring, Chapter 11 process provides releases and exculpation to the debtor, professionals and creditors • Confirmation Protections • Court confirmation of plan mitigates risks of claims arising from out-of-court deal: • Fraudulent Transfer • Preference • Lender Liability

49. Prepackaged Chapter 11 Plans: Other Considerations • Under certain circumstances, it may be in the debtor’s best interest to immediately seek Chapter 11 protection rather than negotiate a prepackaged plan with creditors: • If a debtor is burdened with costly executory contracts and leases, it might be in its best interest to first file for bankruptcy, reject its burdensome contracts and leases (thereby converting them into general unsecured claims), and then negotiate a plan with creditors • A debtor that has defaulted on a debt obligation or is a defendant in litigation may prefer an immediate bankruptcy filing to take advantage of the automatic stay • By soliciting creditor acceptances for a prepackaged plan, a debtor alerts its creditors that it intends to file for bankruptcy • This advance notice may increase the likelihood of creditors acting adversely to the debtor (e.g., filing an involuntary bankruptcy petition against the debtor, tightening credit terms or ceasing to extend credit altogether)

50. Prepackaged Chapter 11 Plans: Other Considerations • Prepackaged plans are more appropriate in the context of financial restructurings (as opposed to operational restructurings) • Prepackaged plans are well suited to situations in which a sophisticated bondholder group holds most of the debt and a single representative can negotiate with the debtor on behalf of the bondholders • In contrast, where a debtor has a large number of creditors representing different types of claims, it is often too difficult for a debtor to negotiate plan terms with enough of its creditors to obtain the requisite number of plan acceptances • Problematic with respect to trade, litigation, employment and other claims • Difficult to adequately identify and solicit claims other than financial debt