Mexico’s Comerci set for court fight with JPMorgan Thu Jun 11, 2009 9:38pm JPMorgan refuses to extend standstill agreement

* Three key creditors give Comerci more time

* Comerci says derivatives positions were illegal

* Co. claims was duped by JPMorgan into derivatives

* Comerci says will be "destroyed" if JPMorgan succeeds (adds quotes from legal filing, updates stock price)

By Cyntia Barrera Diaz

MEXICO CITY, June 11 (Reuters) - Mexican retailer Comercial Mexicana said three key creditors agreed to give it more time to come up with a long-awaited debt restructuring, but JPMorgan chose to resume a fight in court.

JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) tightened its grip on the struggling supermarket chain, known as Comerci, refusing to extend a standstill agreement that had frozen legal action in a U.S. court against the Mexican firm.

Comerci (COMEUBC.MX: Quote, Profile, Research) defaulted on its debt in October after the global credit crisis sparked massive losses on extensive derivatives bets.

JPMorgan, Barclays Plc (BARC.L: Quote, Profile, Research), Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) and Bank of America Corp (BAC.N: Quote, Profile, Research), which were counterparties to Comerci’s losing derivatives positions, claim they are owed more than $2 billion.

The Mexican supermarket operator responded to JPMorgan’s suit and countersued on Wednesday, saying derivatives instruments sold by the bank were illegal under the Mexican and New York law.

Comerci said JPMorgan salesmen recommended that it invest in increasingly complex foreign exchange derivatives to head off losses as hedging positions it had used for a decade soured in 2005.

"They were behaving, not like investment professionals, but like casino dealers taking a healthy cut of every bet made at their tables," Comerci said in a legal filing.

STACKED DECK

In Mexico, authorities are probing whether Comerci broke the law by not clearly disclosing its derivatives bets, which some experts say were unsuited to running a supermarket chain.

Regulators are also investigating whether banks that sold the derivatives failed in their duty to give clients good advice.

"The forex bets the dealers sold to Comerci amounted to nothing more than hands dealt in an incredibly high-stakes game of poker played, unbeknownst to Comerci, with a deck of marked cards," Comerci said.

All the banks except JPMorgan extended for the ninth time a deadline for Comerci to reach a restructuring agreement, giving it until July 10, the retailer said in a stock exchange filing on Thursday.

The retailer’s shares were up 1.82 percent at 7.26 pesos.

The company’s latest restructuring proposal included a possible equity stake for creditors, the payment of an undisclosed amount of debt over six to eight years, and asset sales over two to six years.

A source consulted by Reuters last month said Comerci was offering to repay $1.45 billion of debt, or about half of what creditors claim they are owed.

About $950 million would come from ongoing operations paid over seven years, and $500 million would be paid over six years and would be guaranteed by Comerci’s Costco (COST.O: Quote, Profile, Research) warehouse retail venture and land reserves, according to the source.

"Now that the sucker has been fleeced, the cardsharps want to use this court to cash in their towering stacks of chips. If they succeed, Comerci will be destroyed," Comerci said. (Additional reporting by Gaby Lopez; editing by Gunna Dickson) (cyntia.barrera@thomsonreuters.com; +52 55 5282 7153; Reuters Messaging: cyntia.barrera.reuters.com@reuters.net))