May 17, 2012
As would be expected, FCIB's annual International Credit and Risk Management Summit kicked off with a lot of talk of the problems in the European Union. Notably, doomsday predictions about Spain and of a potential Greek exit from the euro—which have been covered in NACM's eNews and blog—were front of mind. Also of particular interest during the conference, held in Hamburg, was talk of conditions in the Middle East.
During a discussion about the region and trade therein, one year removed from the Arab Spring uprisings, panelists surprised some in the crowd by outlining a perhaps overlooked fact about Middle East-based businesses and their proprietors amid the many perceived cultural differences: that there are actually more significant commonalities with so-called "traditional" businesses in the West than often depicted.
"We have exactly the same types of worries; we have the same concerns about the future, our kids, etc.," said Ferda Efe, a senior director with Ashland Specialty Ingredients in Istanbul. "They're really not that different from the rest of the world. We are all one world now, in the end."
Additionally, panelists poked holes at the notion that Middle Eastern businesses, officials, salespeople and credit professionals are culturally unique for taking the time to build the trust level of a relationship, for having distaste when someone over-promises but underdelivers and for being dogged in negotiations. Of those three characteristics, are any things that an American or European credit professional would not want?
Similarly, a presentation on Islamic banking laws and Sharia law compliance by Dr. Salman Khan generated interest, if not controversy at times, by showing that traditional banking methods and products are similar. In fact, to become Sharia compliant with a credit agreement, a traditional product is held up as the model and stripped of things that are not considered compliant, such as the ability to make money off interest, things considered not in "good faith" or ethical. Additionally, Khan alleged there was "little meaningful difference between the conventional banking industry and the Islamic banking industry at present." He characterized the differences as "cosmetic, theoretical and superfluous."
"What has happened in reality, the facts are thus: the implantation in practice has diverged from theory to a large extent," he told FCIB delegates. "You have a Sharia-compliant, not Sharia-based, industry paradigm. The Islamic banking and finance industry operates almost entirely from infrastructure designed for the conventional banking system. There has been no development of a tailored system. The point is Islamic banking has to fit into the platform, however that is even really possible."
- Brian Shappell, CBA, NACM staff writer
To find out more about FCIB's educational offerings, visit their website at www.fcibglobal.com. Look for more coverage on FCIB's recently-concluded International Credit and Risk Management Summit in NACM's eNews, on NACM's blog, and in Business Credit magazine.
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The U.S. Third Circuit Court of Appeals ruled against the Harrisburg, PA city council this week, dismissing their attempt to restart Chapter 9 bankruptcy proceedings.
The debt-saddled city council petitioned for Chapter 9 protection in November of last year, but its filing was rejected by U.S. Bankruptcy Judge Mary France, who noted that it wasn't authorized by Pennsylvania state law. The city council appealed the ruling, but the Third Circuit confirmed France's original decision.
Harrisburg is insolvent due in part to a $300 million retrofit to the city's trash incinerator that failed to generate enough revenue. The city's council hoped to use the Chapter 9 process to fend off creditors demanding payment and restructure their debt, but the state government, Harrisburg Mayor Linda Thompson, Dauphin County—in which Harrisburg is located—and now the state's Bankruptcy and Appeals Courts have either opposed or rejected the council's bankruptcy filing.
The council can request a new hearing on their appeal, or re-file their Chapter 9 petition in July, should they win support from Mayor Thompson.
Harrisburg's insolvency saga most recently took a turn for the uncertain when state-appointed receiver David Unkovic resigned from the position with almost no notice, citing potential political and ethical issues related to the incinerator project. In response, Pennsylvania Governor Tom Corbett appointed a new receiver, retired U.S. Air Force Major General William Lynch, who will take over Unkovic's authority to impose a financial recovery plan on the city. Confirmation of Lynch's appointment will take place at a hearing in a state court later this month.
- Jacob Barron, CICP, NACM staff writer
Chapter 9 bankruptcy is just one of many topics to be covered by Bruce Nathan, Esq. of Lowenstein Sandler PC in "Bankruptcy 2012: What's Hot, What's Not!," one of his presentations at this year's upcoming NACM Credit Congress. To find out about this, and other exciting educational sessions on this year's program, click here.
Building Community at Credit Congress
Going to Credit Congress? The on-site Scholarship Foundation events create credit community in a fun and entertaining fashion. Join us for the Golf Outing on Sunday, June 10 to experience the Cowboys Golf Club. Then, make the winning bid to take something home to your loved ones or coworkers at Monday night's Silent Auction during the Beer and Browse. See what's already on the auction list here.
Your registration and winning bid dollars go to support your fellow credit colleagues through scholarships for a number of educational events. There's still time to register for Credit Congress and, if already registered, add these events.
To see who contributed to building the credit community this past year, look for the donor pages in the June issue of Business Credit, coming soon.
After overcoming a series of conservative objections, the Senate voted to reauthorize the Export-Import Bank (Ex-Im Bank) for three years this week. The bill, H.R. 2072, was passed by the House of Representatives last week, meaning it will now head to the president's desk for signature into law.
In addition to allowing Ex-Im to operate for three years beyond its current charter, which is set to expire at the end of this month, the bill approved by both chambers of Congress also raises the bank's lending limit from the current $100 billion to $140 billion.
"The Export-Import Bank Reauthorization Act of 2012 will allow the bank to continue financing U.S. exports to meet foreign competition and fill the void when commercial funding is unavailable. And the bank will continue to play a critical role in our economic recovery at no cost to the American taxpayers," said Ex-Im Chairman Fred Hochberg. "Senate passage of today's legislation furthers the president's commitment to strengthening our economy and growing middle class jobs. It is a victory for American companies, workers and taxpayers."
Ex-Im was founded in 1934, and reauthorization of its charter is typically pro forma on Capitol Hill, but a late conservative uprising in the Senate meant that H.R. 2072's passage wasn't as guaranteed as it might have been in years prior.
Following the House's overwhelming 330-93 vote approving the bill, Senate Majority Leader Harry Reid (D-NV) moved for the Senate to approve the bill by unanimous consent, but was blocked by Senator Jon Kyl (R-AZ), who instead submitted five amendments to the legislation, each designed to limit Ex-Im's activities in some way. Among the amendments were measures that would put an expiration date of May 31, 2013 on the bank's charter, limited loans, outstanding guarantees and insurance provided by the bank and prohibiting the bank from financing energy projects in other countries, among others. Reid initially refused to allow the amendments to come to vote, but capitulated earlier this week and cleared the way for the bill's approval.
Votes on the five amendments were held on Tuesday, with the Senate roundly rejecting each of them. None were included in the final bill.
- Jacob Barron, CICP, NACM staff writer
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The U.S.-Colombia Free Trade Agreement (FTA) officially entered into force on Tuesday, May 15.
The agreement is expected to increase U.S. exports to Colombia by more than $1 billion annually, while increasing U.S. gross domestic product by $2.5 billion and supporting thousands of new jobs. More than 80% of U.S. exports are now immediately granted duty-free access according to the terms of the FTA, while remaining tariffs will be phased out over the course of the next decade.
"Colombia is dropping tariffs on our manufactured and agricultural goods and that means the door is opening for American workers and businesses to grow," said Senate Finance Committee Chairman Max Baucus (D-MT). "This is a major economic win that levels the playing field for American workers and businesses."
Baucus noted that U.S. companies have lost Colombian market share recently since, in the years between the U.S. FTA's creation and its approval, Brazil, Argentina and Canada have all signed their own FTAs with Colombia. "Colombia's economy is growing quickly and it's a lucrative market for the world-class products made here in the U.S.," he added. "This trade deal is worth a billion dollars in new U.S. exports and thousands of new jobs at home, and that's just the kind of boost our economy needs."
Business groups also lauded the FTA's entrance into force. "Colombia has been the world's greatest turnaround story of the past decade," said Thomas Donohue, president and CEO of the U.S. Chamber of Commerce. "Given the Colombian economy's rapid growth, this landmark agreement will open the door to exciting new business opportunities and job creation in the U.S. and Colombia."
U.S. exports to Colombia have risen four-fold over the past decade, topping $14 billion last year, according to the Chamber.
- Jacob Barron, CICP, NACM staff writer
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The Chapter 11 filing of Adelphia Communications Corp. was marred by disputes between creditors over how each would be paid. As far as the company, formerly the fifth-largest cable company in the United States before filing its case in 2002 as a result of internal corruption, was concerned, drastic measures were necessary.
An article in the May 2012 edition of the American Bankruptcy Institute (ABI) Journal discusses the "troubling precedent" set by Adelphia when it took an unorthodox step to shore up support for its reorganization plan: the debtors agreed to pay certain creditors their attorneys' fees if the creditors dropped their objections to the plan. "The Adelphia decision surely resulted from a genuine desire to conclude a contentious and difficult bankruptcy case under an unusual set of factual circumstances," said author John Sheahan, a trial attorney in the Office of the General Counsel in the Executive Office for U.S. Trustees, "but the practice of paying a creditor's attorneys' fees in exchange for plan support could quietly become more widespread after Adelphia."
In late 2010, the U.S. Bankruptcy Court for the Southern District of New York issued a decision on the payment of non-fiduciary professional fees in Adelphia. The court allowed a number of distressed investors to be reimbursed for legal fees and other expenditures spent in competing for larger recoveries from the debtor's estate. Adelphia's confirmed plan included a provision that paid the legal fees of certain creditors who had settled their plan objections, and that the court approved the fees without requiring these creditors to prove that they had made a substantial contribution to the estate.
This departs from case law and a more literal interpretation of the statute because Section 503(b)(4) of the Bankruptcy Code permits the court to award "reasonable compensation" to the attorneys or accountants of entities who make substantial contributions to the case in specified ways, as long as they can prove such contributions. "The court reasoned that Section 503 'is [not] the only way' that professional fees can be paid by the estate and relied on a little-used provision of Chapter 11 to support its ruling: Section 1123(b)(6)," which Sheahan noted was "a catch-all clause authorizing plans to contain 'any other provision not inconsistent' with the Bankruptcy Code."
Though Sheahan noted that Adelphia was an especially unique and contentious case, and that the U.S. Trustee Program officially views the decision as one that should be conservatively applied in the future, the precedent set by such a "you support my plan, I'll pay your attorneys" approach could be troubling down the road. "Whatever the merits of this highly case-specific approach in Adelphia, it provides little guidance and less certainty in future cases that may follow Adelphia's precedent," he said.
To find out how to obtain a full copy of Sheahan's article, click here.
- Jacob Barron, CICP, NACM staff writer
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Click here to visit NACM's online Bookstore for Manual features and updates, and more information about the wide array of resources available to today's credit professionals.
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