April 12, 2012
Total commercial bankruptcy filings for the first three months of 2012 hit 15,833, a 19% drop from the 19,638 filings during the same period in 2011.
According to data provided to the American Bankruptcy Institute (ABI) by Epiq Systems, Inc., the fall in commercial filings mirrored the overall decline in bankruptcies across the board. Total and noncommercial filings both decreased by 12% in the first quarter compared to the same period in 2011. For March, the 122,118 total filings were up 17% from the 104,418 filings in February, but down 17% from the 146,384 filings in March 2011. Commercial filings in March 2012 increased by 10% to 5,659 over February's 5,166, but again, were still 23% less than the 7,355 commercial filings in March last year.
"With the economic recovery weighed down by the distressed housing market and high unemployment, consumers and business are continuing to cut their debt burdens," said ABI Executive Director Samuel Gerdano. "We expect that the 2012 bankruptcy totals will be less than last year as companies and families remain vigilant in cutting costs and shoring up their balance sheets."
For trade creditors, the decline in bankruptcy filings has also been accompanied by a drop in collection issues, according to Lynnette Warman, Esq., a partner with Hunton & Williams, LLP. "The trade creditors I speak with confirm that they are experiencing fewer bankruptcy filings and that, for many, there are fewer collection issues," she noted. "In fact, the number and amount of trade debts outsourced to collection agencies have also dropped over the past year."
Much of the decline can be traced back to tightened credit conditions, both secured and unsecured, that gripped the trade during the recession. "As this occurred, some businesses failed fairly quickly after their bank lines were cut or unsecured credit reduced, " said Warman. "Some of these closures were done through bankruptcy; other businesses just quietly closed their doors and their owners simply stopped doing business."
While banks and sellers tightened credit across the board, the buyers simultaneously experienced a significant drop in their own income. "Many companies experienced a serious reduction in sales, which obviously led to fewer purchases on their part, thus less outstanding unsecured debt," said Warman. "Businesses that have survived the past few years have had to cut expenses to survive, and should have less debt, both secured and unsecured, on their books."
Warman will present four sessions at this year's NACM Credit Congress in June, including co-hosting the CCE Exam Review and serving as a panelist in the Legal Issues Executive Exchange session. To find out more about this year's program, or to register, click here.
Jacob Barron, CICP, NACM staff writer
Consider Becoming a Silent Auction Donor
The NACM Scholarship Foundation is delighted to again host its Silent Auction during the Credit Congress & Expo in Grapevine, Texas. Funds raised from the auction go directly to the foundation to support its goal of providing financial assistance to credit professionals for educational programs that increase their knowledge and strengthen the profession and business community.
Click here to review details on donating and bidding on the NACM Credit Congress web pages.
NACM experts warned last year, when municipal bankruptcy became a hot discussion topic, that the Chapter 9 process was fraught with twists and turns that made it a very difficult process. Two of three most notable filings of 2011 continue to demonstrate that.
In Jefferson County, AL, just weeks after U.S. Bankruptcy Court Judge Thomas Bennett ruled the Chapter 9 case would continue despite legal efforts by creditors tied to a sewer retrofit, a U.S. District Court Judge has paved the way for a challenge. Judge Inge Johnson this week ruled that creditors involved in the largest U.S. municipal bankruptcy to date could legally appeal the eligibility of Jefferson County's bankruptcy filing, which exceeded $4 billion. The terse, written ruling gave little explanation for the finding. Meanwhile, back in U.S. Bankruptcy Court, creditors have launched a challenge to what can even be considered a necessary operating expense in connection with operations of the infamous sewer system by the county.
Jefferson County has been reeling financially from the botched sewer retrofit venture that has left the county, which includes the city of Birmingham, with massive debt and little ability to make proper payments while continuing to operate all of its services.
In Harrisburg, PA, where U.S. Bankruptcy Judge Mary France rejected last year's attempted Chapter 9 filing from the city, the situation has become increasingly murky. At the end of March, state-appointed receiver David Unkovic, who was charged with getting the city on track financially, resigned from the position with almost no notice or foreshadowing of the move. Unkovic essentially vanished with little reason behind the move explained on his way out. The former receiver did request that an investigation be launched into possible illegal activities tied to a trash incineration project that has generated most of the city's crippling debt.
The resignation comes just weeks after Unkovic dropped a bombshell by saying publicly that despite the state and the mayor's vitriolic fight to prevent the council's Chapter 9 filing last fall as well as France's rejection of the first attempt, bankruptcy might be the only choice for the Harrisburg by July if stakeholders don't make concessions. Unkovic's previous plan to keep the city out of bankruptcy, now essentially off the table, included local lawmaker-resisted measures such as selling the incinerator operation as well as parking structures to private ownership groups.
Brian Shappell, CBA, NACM staff writer
Earn Recognition, Respect and a Lifetime Designation in 13 Weeks
REGISTRATION DEADLINE: May 8, 2012
FCIB's International Credit & Risk Management Online Coursesm, leading to the prestigious lifetime Certified International Credit Professional (CICP) designation, begins May 13, 2012.
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Last chance to register for the upcoming course is May 8th and SPACES ARE FILLING UP FAST! To learn more about the International Credit & Risk Management online coursesm, please click here.
Small business optimism fell for the first time in six months in March, according to the National Federation of Independent Business (NFIB). The association's small business optimism index fell by nearly 2 points last month, down to 92.5 after February's 94.3 and six consecutive months of gains.
In its commentary, NFIB noted that the absence of a real, remarkable recovery was beginning to weigh on respondent confidence. "The March survey results were bad news, ending what promised to be steady, albeit glacially slow, improvements in the small business sector of the economy. Nothing much happened in March to make owners more optimistic about the future and that seems to be the problem, the status quo."
Continued uncertainty in various facets of the economy throughout the course of March also contributed to the drop in optimism. "Europe was quiet but somber, uneasy, as if waiting for another shoe to drop. Consumer confidence and spending remains depressed. And health care is in the Supreme Court creating more uncertainty, either way the decision goes," NFIB added.
A lackluster unemployment report last week seemed to anticipate the index's decline, as the Bureau of Labor Statistics' latest figures indicated that only 120,000 jobs were created in March, the fewest since October. "The jobs issue remains at the top of the list for most and it certainly has the attention of the politicians. Things looked pretty good until the March jobs report came in far weaker than expected," said NACM Economist Chris Kuehl, PhD. "Now there is talk that 2012 will follow the same pattern that was noted in 2011—a nice start to the year that was followed by a slump caused in no small part by the hike in gas prices."
Inflation concerns also drove many survey participants to register their pessimism. "Fully a third of the respondents cited inflation as their number one concern even as they see weaker than expected demand," said Kuehl. "The most immediate threat has come from the escalating price of fuel, but they all note that gas prices have forced other costs up already."
"The most interesting set of comments as far as the general economy is concerned is that almost a quarter of the companies polled plan to raise their own prices in the next few months," Kuehl added. "This is the process that really kicks inflation into high gear."
Jacob Barron, CICP, NACM staff writer
New Lien and Bond Course Available in Credit Learning Center
Construction-oriented credit professionals understand the value of knowing the basics of the lien and bond process.
In "Liens and Bonds: The Critical Nature of the Preliminary Notice," the newest module in NACM's Credit Learning Center, the preliminary notice is stripped down to its basic components. This module addresses the when, why and how the preliminary notice relates to retaining lien rights, while leveraging receivables down the ladder of supply. From state-to-state nuances through timeframes and required elements, this must-view module will get you started down the right path.
Click here for more information about this course and the Credit Learning Center.
Trade Roundup: Exporting Costs Up in U.S., Asia More Important to Germans, China Still with Big Surplus
As energy costs continue to run at a high level on investment runs and geopolitical concerns, the cost for U.S. businesses to conduct trade continues to rise.
March U.S. export prices rose at the highest rate in 11 months, 0.8%, and at a level double the pace of the February increase. Import prices also experienced a sizable uptick, 1.3%. That is also the largest monthly increase since April 2011, when import prices spiked by 2.6%.
The story, not so surprisingly, revolves around fuel prices. More than 60% of the trade cost increases stemmed directly from fuel import prices, which rose by 3.8% for March. And the United States is far from unique in experiencing production and shipping price increases tied to energy cost surges: imports from Canada, the European Union and Mexico to the U.S. increased by 1.2%, 0.9% and 1.1%, respectively.
News of export pricing increases is not shocking, though analysts widely expected the rate to be less than, by as much as half, the 0.8% noted in the statistics.
Meanwhile, in Germany, a trade official said Wednesday that imports likely will outpace exports in 2012 in the nation, an oddity for the production titan. Granted, Germany continues to run at a large surplus, nearly 160 billion euros. Acknowledging the reality of the European Union's deep financial problems, especially among its southern members, BGA President Anton Boerner declared that the EU was "losing importance" as far as export destinations go. Filling the void, noted Boerner, were buyers in fast-emerging Asian markets.
In China, market-watchers were surprised by this week's news of a near $5.4 million (USD) trade surplus on surging exports in March. Chinese officials pinned the increase to renewed appetite from U.S.-based buyers at a rate that is higher than expected at this point of the recovery. China, amid growing concern over lower domestic demand, drew wary eyes by running a $31.5 billion deficit just one month ago.
Brian Shappell, CBA, NACM staff writer
Make Better Credit Decisions with Industry Credit Groups
Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data about the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:
- Provide unparalleled networking opportunities
- Assist in the exchange of credit information on common customers
- Facilitate the receipt and analysis of information to make unilateral credit decisions
- Provide a forum to discuss the latest developments on credit department procedures,
equipment and other credit management functions
- Support the discussion of account information and delinquent account reports
- Adhere to federal antitrust guidelines
Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
It might have been a risky investment at the time, but the Troubled Asset Relief Program (TARP) continues to look like a better idea with each repayment.
Following Regions Financial Corporation's repurchase of its outstanding $3.5 billion in TARP Capital Purchase Program (CPP) preferred stock, Treasury officials noted last week that positive return from TARP bank programs had reached $18 billion. The agency invested a total of $245 billion in the TARP bank programs, and has thus far has recovered $263 billion through repayments, dividends, interest and other income.
In addition to their $3.5 billion repayment, Regions Financial has also paid taxpayers $593 million in dividends over the life of its TARP investment, and the Treasury continues to hold warrants to purchase common stock in the company. The disposition of those warrants will provide an additional positive return for taxpayers.
"This repayment is another milestone in our efforts to wind down TARP and provides an additional profit for taxpayers on the program's investment in banks," said Assistant Secretary for Financial Stability Tim Massad. "Replacing temporary government support with private capital is an important component of continuing to restore financial stability."
While TARP bank programs have already turned a profit, on the whole, TARP still remains slightly in the red. To date, taxpayers have recovered 81%, or $337 billion of the $415 billion in total funds disbursed across all TARP programs.
Jacob Barron, CICP, NACM staff writer
Best-in-Class Service from NACM's Mechanic's Lien and Bond Services (MLBS)
MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.
For more information on NACM's MLBS, click here.
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