January 19, 2010
With his trademark wit and style, NACM Economist and Armada Corporate Intelligence (ACI) Managing Director Chris Kuehl offered his forecast for the new year in FCIB's most recent teleconference, "Global Outlook 2010."
Kuehl noted that much has changed since the beginning of the global recession in late 2008 and 2009 and the economy seems to be experiencing a tentative form of growth. "Investor confidence has returned," he said. "NACM has been doing the CMI (Credit Managers' Index) and the good news is the CMI is consistently in the 50s," added Kuehl. "We actually had a little decline in December but, even with that dip, it's been above 50, and anything over 50 is expansion. Additionally, the service side of the CMI has done better than expected."
Other indicators have mirrored the CMI's optimism. "The Purchasing Managers' Index (PMI) has been up consistently and is showing some really interesting growth," he said. "One of the things that's really encouraging is that the new orders section is up to the mid-60s."
"Manufacturers are looking to the future with some confidence," said Kuehl, "not to the point where everyone can relax but it sure beats the heck out of last year."
Indeed, while these indicators are promising, many things still remain that can derail the global economy's nascent recovery. "You've got things that are not so good," said Kuehl. "Unemployment rates are above 10%," he noted, adding that this isn't merely an American problem. "European unemployment is about 10% too, but stable."
Banks also continue to face global pressures that could have ramifications for 2010. "You have election politics playing a role not just in the U.S. but all over the world," said Kuehl. "Central banks are trying to balance when they should start reining in monetary policy, but this is where politics plays a role. The central banks are seeming more besieged in their independence and it's not a given that they remain independent."
"There's always political pressure to bring the banks back under control of the government because they do things that contradict where the government wants to be," he added.
"One of things that's going to be a concern for the international community is that most countries seem to be sliding into some form of populism," warned Kuehl. "People are frustrated, the bankers are this close to being tarred and feathered, and because of the notion that business is being lost to other countries and that exports are making up for the imports, you're getting backlashed."
"We're going to have to watch carefully how this plays out," he added.
For more on FCIB's educational programs, visit their website at www.fcibglobal.com.
Jacob Barron, NACM staff writer
Understanding the Customer
If the best source of information about a customer is the customer itself, then nothing can help credit professionals understand the customer more than a face-to-face visit. Join Susan Delloiacono, CCE on January 20th at 3:00pm EST for her NACM teleconference, "Customer Visits." Susan will draw on her decades of experience as a credit professional to illuminate how to get the most out of a customer visit and just how valuable they can be.
To learn more about this teleconference, or to register, click here.
NACM and Business Credit magazine congratulate this year's winners who rose to the top among the many worthy stories submitted.
1st Place: Jennifer Hudgens, vice president, The Kreller Group, Cincinnati, OH
Deliberate Debtor Pays Big Price
I have pursued many debtors over the years, including high profile cases where millions of dollars were owed. But it took one small balance debtor to educate me about certain debtors who make a tidy little business for themselves by deliberately incurring low balance debts. I had a big laugh in the end on how I dealt a blow of my own to one such scam artist.
My client's firm did construction for new housing developments as well as contracting out work for new additions to their customers' homes. Therefore my client would hire out contractors who would do the work and collect the money from the homeowner on site. Unfortunately, a common problem in this industry was that the contractors would collect the money, pocket it themselves, and never pay the company that got them the job in the first place.
Runner-up: Norman Cowie, CCE, vice president, finance, Evergreen Oak Electric Supply and Sales Co., Crestwood, IL
What a Nice Guy!
Carl was a nice guy. Maybe even a great electrician. Someone you'd like to go to the ballgame with. Maybe sit down and discuss life over a cup of coffee. Our counter guys and salespeople all liked him.
Jeesh, I'm talking like he's dead. Last I heard, he was still alive...maybe he is...I hope so. Like I said, he's a nice guy. But he wasn't a good customer.
A good customer is not only loyal, understands that you might make a mistake and is understanding about it...but they don't lose sight that it's a businessâ€”and in a business, each side has to keep up its end of the bargain.
The part of this Carl didn't get is the whole payment thing. It just didn't seem important to him. I suspect one of the reasons for this is Carl was such a nice guy, he couldn't collect his money from his customers. This made it a bit tough for him to pay his own bills. So he simply didn't. Then he didn't some more. And some more. He kept not paying us. He didn't say why. In fact, he didn't return my calls. My letters were just offerings to be disposed of in the circular file. My voice messages were just a different kind of ringtone, and he maybe kept appointments by their regularity.
So I went after him.
Runner-up: Allen Vickers, CCE, corporate credit manager, A&K Railroad Materials, Inc., Salt Lake City, UT
Making a Tough Call
What action is warranted when a customer continues to make and break payment promises on a seasonal product they orderedâ€”and the season has past? Like most credit managers would do, when the dollar amount justifies it, I decided to make a personal call. Of course that meant coordinating the visit with a sales representative who covered that area of the United States. Little did I realize what an adventure that would turn out to be!
For years, my philosophy had been to establish a close, working relationship with sales reps in hopes of having an additional set of "eyes and ears" out in the field. Since the incident occurred, of which I am about to relate, my expectations have been modified a bit.
As the credit manager for a major sporting goods manufacturer, I scheduled road trips periodically with sales reps in order to accomplish several objectives.
The winning story will also appear fully in the February issue of Business Credit. Catch the runners-up in the March issue!
New MLBS Half-day Workshop Coming in March!
Join NACM's Mechanic's Lien & Bond Services (MLBS) President Greg Powelson for his next half-day lien and bond workshop on March 19 at the Norwalk Marriott in Norwalk, CA. In "Liens & Bonds: Building the Optimal Credit Department," Powelson will take attendees through the many idiosyncrasies that accompany construction credit and the many ways in which liens and bonds can be used to secure payment on what are often risky projects. From collecting job information all the way through foreclosure, attendees will get a fast-paced look into how they can create the optimal construction credit department.
To learn more about the program, register or read testimonials about Powelson's previous presentations, click here.
In light of two recent and contradictory judgments* affecting the use and applicability of Section 503(b)(9) claims, trade creditors have been left with an enigmatic draw of sorts. As a means to offer some clarity, NACM hosted a teleconference last week, led by Deborah Thorne, Esq., a partner in the Chicago office of Barnes &Thornburg LLP and long-standing contributor to the association's legal education resources, that reexamined 503(b)(9) claims and gave participants an opportunity to share their questions and concerns.
Section 503(b)(9) was added to the Bankruptcy Code as part of the 2005 BAPCPA amendments. This section was specifically included to create an administrative priority claim that would favor trade creditors that sell goods to debtors in the ordinary course of business. In spite of its straightforward objective, the section has left some integral questions unanswered, allowing debtors and secured lenders the opportunity to attempt to limit 503(b)(9) claims.
During her discussion, Thorne covered the origins of such claims, which reflect some of the protections offered by Article 2 of the Uniform Commercial Code. Envisioned as a stronger remedy for trade creditors, Section 503(b)(9) "entitles [a] seller/creditor to an administrative claim for the value of goods delivered to the debtor during the 20 days prior to the debtor's bankruptcy petition."
As Thorne noted, various judges and courts have treated 503(b)(9) claims in various ways; no one practice is currently uniform. Although the Bankruptcy Code requires a creditor to file a motion in order to prosecute a 20-day claim, some courts require creditors to follow a procedural order, file a claim on a separate form or file a claim on a combined form. "Don't get hoodwinked by procedural orders," Thorne emphasized. Regardless of the composition of the claim, it's imperative that the information provided is concise and fully supported by appropriate documentation such as invoices, proof of delivery and so forth. "Do all of the work," Thorne explained, "so there are no arguments."
Among the related topics discussed by Thorne and teleconference attendees were the continuing efforts by legal counsel representing debtors to dismantle, if not eliminate, 503(b)(9) remedies. In April 2009, Representative Jerrold Nadler (D-NY) introduced H.R. 1942, "The Business Reorganization and Job Presentation Act of 2009," which would repeal several trade creditor protections in BAPCPA including Section 503(b)(9) claims. As of May 26, 2009, H.R. 1942 has been referred to the Subcommittee on Commercial and Administrative Law, and has attracted only one cosponsor: Representative Steve Cohen (D-TN).
A replay of this teleconference is available from Tracey Flaesch at 410-740-5560 or email@example.com. To learn more about NACM's teleconference series, or to register, click here. Additionally, don't miss Bruce Nathan's related article, "Section 503(b)(9) Goods Supplier Priority: Beware of the Debtor's Setoff Rights," in the February 2010 issue of Business Credit magazine.
*The Circuit City bankruptcy case, which is being heard in the U.S. Bankruptcy Court for the Eastern District of Virginia and the Commissary Operations, Inc. bankruptcy case, which is being heard in the U.S. Bankruptcy Court for the Middle District of Tennessee.
Laura Redcay, NACM staff writer
These troubling economic times can create problems in more ways than one would anticipate. Even while credit executives are tightening their control on credit extension, customers are looking for innovative ways to convince a credit executive to extend that credit. In this environment, the last thing credit professionals and their companies need is an angry federal regulator breathing down their neck for alleged violations.
Credit executives, today more than ever, need to know what can or cannot be done, what can or cannot be discussed, when and how credit terms may be adjusted, and what is now covered, under various antitrust statutes. Join Wanda Borges, Esq., on January 25th at 3:00pm EST as she illuminates the ins and outs of these statutes in her latest NACM-sponsored teleconference, "Antitrust Issues." Participants will learn more about the basis of these laws and more about how they can keep from putting their company's hard-earned money at risk by running afoul of the nation's antitrust regulators.
To learn more about this teleconference, or to register, click here.
President Barack Obama recently announced the awardees of $2.3 billion worth of clean energy manufacturing tax credits.
Earmarked as part of the $787 billion stimulus package passed in February 2009, the provision consists of a 30% tax credit for domestic clean energy manufacturing facilities that produce wind turbines, solar panels, smart grid equipment and other clean, renewable energy products.
The tax credits were issued separately to 183 projects across the country.
"Today's announcement is a decisive step toward a stronger, clean energy economy that will increase energy efficiency and reduce dependence on foreign oil. In development of the recovery package, we drafted this provision to help get America focused on job creation through new manufacturing and domestic energy production," said Senator Max Baucus (D-MT), chairman of the Senate Finance Committee. "Today, the president has set the criteria to identify and award some of America's most progressive and effective firms in this area."
"I applaud the president for his follow-through on this effort and appreciate his support for what we hope to be a highly effective tax measure," he added. "As we look to full economic recovery, the alternative energy sector remains key to growing jobs at home and strengthening leadership abroad."
The measure is expected to create 17,000 new jobs in the industry and will be matched by $5.4 billion in private sector funds, which will support up to another 41,000 additional jobs. While there were more than 500 applicants for the credit, totaling $8 billion worth of requests, the statute dictates that $2.3 billion is the maximum that can be awarded.
"Building a robust clean energy sector is how we will create the jobs of the future," said President Obama. "The Recovery Act awards I am announcing today will help close the clean energy gap that has grown between America and other nations while creating good jobs, reducing our carbon emissions and increasing our energy security."
Jacob Barron, NACM staff writer
Things Are Looking Up, But Don't Let Up in Getting Paid
Collect your past-due accounts, large or small, as quickly as possible through the NACM Affiliate Collection Services. Our departments are firm, but fair, with your customers. The primary objective is to collect your money.
Our Affiliate collection departments have tried and true steps in notifying your debtor and making immediate demands for full payment. If direct personal contact is appropriate, we have many resources, including the ability to draw on all of our other Affiliates nationwide. When necessary, we will forward an account to one of the bonded attorneys in our legal network. We exhaust all collection possibilities before recommending litigation to you. All funds collected are placed in separate trust accounts.
NACM Affiliate collection services include:
â€˘ Letter Services
â€˘ 10-day Demand Service
â€˘ Action and Litigation
â€˘ Litigation Service
â€˘ Status Reports
Click here to learn more about NACM Affiliate Collection Services.
SMR Research Corp. is sounding the alarm on commercial mortgages. According to the research group's latest study, "The Commercial Mortgage Dilemma: Banking's Next Credit Challenge," the rate of commercial mortgage defaults will rise rapidly in 2010 and will likely negate profit margins for medium- and smaller-sized banks throughout the United States.
The commercial mortgage crisis, however, will not create the havoc wrought by the consumer mortgage/real estate crises. "The saving grace for the financial system is that most really large U.S. banks are modestly exposed," said SMR President Stuart A. Feldstein.
Looking at the Numbers
Commercial mortgages at small banks with less than $1 billion of assets currently comprise 32.5% of their total assets. This represents a "level of dependence six-times higher than at big banks with $50 billions or more of assets." Conversely, and according to recent figures, highly delinquent commercial mortgages only comprise 0.1% of Citigroup's assets while Bank of America's exposure is just a bit higher. JPMorgan Chase, likewise, appears to be unaffected; consequently, "None of the nation's largest banks risk failure due to commercial mortgage defaults," SMR noted.
Another telling statistic, recorded at the end of September 2009, shows that 154 banks "had highly delinquent commercial mortgages equal to 3% or more of their total assets." Since banks usually only earn profits representing 1% of their assets in a decent year, it remains to be seen how this group will survive 2010 as solvent institutions.
According to the study, the 90-day-plus delinquency rate for all commercial mortgages was continuing to rise as 2009 drew to a close. The rate hit 5.59% at the end of September, a substantial increase from the 3.51% recorded in March. By the end of 2009's third quarter, the total commercial mortgage loan market constituted $3.4 trillion.
Building a Case for Cautious Optimism
But all is not lost. "If the economic recovery continues apace, the new commercial mortgage crisis may peak in 2010 and improve in 2011," Feldstein said. For starters, the SMR study suggests that the early-stage delinquency rate on commercial mortgages is likely to have peaked in the first quarter of 2009. Additionally, overall delinquency and write-offs on commercial mortgages were still below levels seen in the last commercial lending crisis in 1991.
More details about SMR's new study can be found online at "Commercial Mortgage Dilemma"
Laura Redcay, NACM staff writer
Look for the "A" Players
You need the "A" players. They're the most qualifiedâ€”the most productive peopleâ€”in your organization. And, for any open positions you have, you need them fast because any interruptions in staffing can mean missed deadlines, a breakdown in operations and loss of productivityâ€”consequences you can't afford.
You'll find the "A" players at Careers in Commercial Credit, Collections & Finance (C4F), the online resource for the people who are educated and experienced in your related field, and who are looking for the opportunities you can provide.
Click here to get started!
C4F: Employment Connections for the Business Credit Community
As 2010 begins in earnest, two industry resources have gauged the condition of commercial real estate and arrived at conflicting conclusions. On one hand, the CCIM Institute and Real Estate Research Corporation are backing a generally optimistic outlook for the sector. On the other, Guardian Solutions, a commercial loan restructuring company, is offering a less-than-rosy analysis.
A Glass Half Full
Although negative expectations continue to surround the commercial real estate sector, at least one recent study heralds a slightly more positive outlook. The Investments Trends Quarterly report, a resource developed by the CCIM Institute and Real Estate Research Corporation (RERC), suggests a smaller decline for the sector, especially during the second half of 2010.
"For those of us involved in the business of commercial real estate, stress has turned to distress. Reports of foreclosures on high-quality properties and failed banks are occurring almost daily. Property values continue to decline, along with occupancy rates and rents," said Richard Juge, CCIM, the 2010 president of the CCIM Institute and president of RE/MAX Commercial Brokers in Metairie, LA. "However, we also see signs of improvement, and while the path ahead is rocky and will be difficult to navigate for many, it also provides some extraordinary buying and leasing opportunities."
Overall, the Investment Trends Quarterly report identifies several key factors that presage improvements for the sector. One such factor is increased transaction volume on a quarter-to-quarter basis, a result primarily seen in the office, retail, apartment and hotel sub-sectors. Industrial properties represented the only property type to face quarter-to-quarter volume declines. According to the report, pricing is also starting to increase on a quarterly basis in certain property segments.
The report also identifies the following industry trends for 2010:
- Credit will remain tight.
- Bank foreclosures will increase as more commercial loans come due.
- Consumer spending is expected to remain relatively sluggish.
- Vacancy rates for all major commercial real estate sectors will continue to increase throughout most of 2010.
- Capitalization rates will move slightly.
- Commercial property sale prices and rents will remain mostly flat or decline further.
- Commercial real estate construction will remain slow.
- Sales volume and transactions will begin to increase.
- More entrepreneurs and opportunistic funds will look more closely at real estate.
A Glass Half Empty
Offering a much more dire forecast is Guardian Solutions, a Clearwater, FL-based firm that specializes in commercial loan restructuring. Basing its outlook on data drawn from the "Emerging Trends in Real Estate 2010" report issued by the Urban Land Institute and PricewaterhouseCoopers, Guardian Solutions is anticipating value declines that will likely equal or surpass those recorded during the Great Depression. Surveys included in the "Emerging Trends" report also suggest that investors will find 2010 to be the worst year in which to sell commercial real estate properties.
"The last several years have seen liberal lending in the commercial market," said Thomas Bible, a broker for Florida-based VIP Executive Realty. "Though not as pervasive or severe as in the residential market, this reckless lending is possibly more threatening to our economy."
According to Guardian, the national vacancy rate is likely to rise to 18.5% to 19% by the end of this year. With tenants scrambling to maintain their perilous hold on an ever-shrinking market share, commercial real estate property owners have been and will continue to be affected by limited cash flow.
Loan restructuring is one tactic proactive commercial real estate owners may pursue in order to lessen the effect of financial decline and falling property values. Invoking a multi-pronged approach, loan restructuring may involve efforts to modify the original loan, revise an owner's business plan, reduce expenditures and renegotiate franchise fees. "[Some] owners are beginning to look outside the relationship they have with their lender's local representative, because the real decision making rarely happens at the local level," explained Bible. "They want an equitable solution that maintains the relationship, so that everyone wins."
"This recovery is going to take even longer than expected," said Bible. "The commercial real estate market follows residential by about 18 months. I recommend that property owners seek assistance early in the game rather than wait for some sort of turnaround."
Laura Redcay, NACM staff writer
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