March 30, 2010

News Briefs

  1. Credit Congress Offers Inside Scoop on Canadian Insolvency System
  2. Concern Still Present Though Commercial Real Estate Values Up, Debt Load Down
  3. Vermont Senate Takes Aim at Credit Card Interchange Fees
  4. Perini Files Big-dollar Mechanic's Lien Against Vegas Developer
  5. Lawmakers Eye Federal Procurement Reform to Aid Small Businesses
  6. Credit Problems in Portugal, Greece May Loosen Domestic Credit
  7. U.S. Chamber Steps Up Opposition in Wake of Financial Reform Committee Passage

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Credit Congress Offers Inside Scoop on Canadian Insolvency System

The Canadian Bankruptcy system underwent an array of changes in the last year, many of which went into effect in September 2009. However, Ontario, the nation's most populous province, recently enacted its own change by raising the monetary limit for legal disputes that can be heard in Canada's Small Claims Court.

Also referred to as "the people's court," Canada's Small Claims Courts are often the country's most efficient and easiest to navigate. Prior to January 1st, only cases involving amounts up to $10,000 could be brought in Ontario's Small Claims Court. Now, however, the limit has been raised to $25,000, allowing more cases to be handled as small claims and giving creditors a chance to avail themselves of these courts' expedited procedures.

As U.S. companies have continued to seek out customers to further enhance their recovery in the wake of the recession, many have looked north to Canada, a country with which the U.S. enjoys a unique trade relationship. However, like most countries, the financial crisis did not leave Canada unscathed, and the nation has experienced modest increases in insolvencies since the beginning of the recession. While Canada offers U.S. sellers a wealth of opportunity, creditors familiar with Canada's bankruptcy system will have an altogether easier time should one of their Canadian customers falters.

For a full rundown of Canadian insolvency laws, be sure to check out Hubert Sibre's session at this year's Credit Congress, scheduled for May 16-19 at the Rio Hotel in Las Vegas, NV. Sibre, a partner at Davis LLP in Montréal, will lead attendees through Canada's three prevailing insolvency legislations, identifying the risks for creditors in addition to outlining practical strategies that will help companies avoid any potential pitfalls.

Learn more about the other valuable educational sessions and register for this year's NACM Credit Congress.

Jacob Barron, NACM staff writer

Executive Exchange Sessions at Credit Congress

New to NACM's Credit Congress, these interactive forums are led by a moderator and supported by a panel. The six subject areas are:

18021. Bankruptcy
18022. Building and Construction
18023. Credit and Collections
18024. International Issues
18025. Performance Metrics
18026. Agriculture, Steel and Other Commodities

All Executive Exchange sessions are held on Monday, May 17th from 2:00-5:00pm. Attendees are encouraged to submit questions and topics for discussion in advance to the NACM Meetings Department . Visit the Credit Congress web pages for more information about these sessions and all Credit Congress has to offer.

Concern Still Present Though Commercial Real Estate Values Up, Debt Load Down

For the first time in months, good news regarding commercial real estate conditions has emerged in a wave, albeit a small one. Still, many are unsold on the newfound signs of stability.

A Moody's Investors' Services report finds that commercial real estate prices increased for the third consecutive month in January. Granted, the uptick was just 1% between January and the previous year, and it arrives not long after median commercial real estate hit a record low in October. Meanwhile, a Mortgage Bankers Association (MBA) study found the amount of outstanding mortgage debt at the end of 2009 was 2.8% ($99 billion) less than one year prior. Statistics used in the study, collected by the Federal Reserve, however, did show a 1.7% quarterly increase for 4Q2009.

These studies and predictions from industry experts are among many pointing to increased confidence that the worst of the commercial real estate downturn has passed. Marcus & Millichap CEO Harvey Green even hit the television news circuit last week extrapolating that an increase of interest from capital markets indicates the sector correction's bottom already has been found. Green appeared particularly encouraged by the potential of an increase in occupancy levels in order to keep pace with an inevitable surge in job creation and continued high domestic household formation.

However, each piece of good news came with at least one negative caveat:

  • MBA acknowledged one of the reasons for dropping debt ratios was the slow pace of new originations compared to pay-downs of existing mortgages.
  • Green noted much of 2010 would entail "bouncing around the bottom" rather than watching a hot rebound.
  • Moody's analysts indicate they want to see higher real levels of commercial real estate transactions before calling the recent positive trend a sustainable one.

Christopher Cornell of Moody's said small gains in prices are among signs that things are moving in the right direction, but many deep industry problems loom.

"It is fair to say, for the moment, that commercial property prices appear to be near their bottom," Cornell said. "Unfortunately, the problems associated with commercial real estate are not solved by a small turnaround in prices. While improved, prices remain 40% below their peak value. Current property owners face at least three problems: (1) property prices remain well below book value in many cases, making refinancing difficult; (2) many commercial real estate mortgages are likely to be 'underwater' or in a situation of negative net equity; and (3) low property prices are depressing rents and reducing income received by the property owners while their mortgage payments and maintenance costs remain as before."

Chmura Economics & Analytics Senior Economist Xiaobing Shuai also is pessimistic that recent statistical improvements will manifest into a real estate rebound before year's end because of the poor employment situation.

"Though the economic recovery is underway, I don't see many good signs in the real estate market," said Shuai. "Without strong recovery in the job market, who will rent those offices?"

Brian Shappell, NACM Staff Writer

MLBS Offers Complete Lien and Bond Services and More

NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.

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.

Vermont Senate Takes Aim at Credit Card Interchange Fees

The Vermont State Senate Judiciary Committee recently passed a bill that would restrict interchange fees on small business credit card transactions.

The bill, S. 138, plainly titled "An Act Relating to Credit Card Fees," passed the committee including an amendment proposed by State Senate President Pro Tem Peter Shumlin (D) that would prohibit credit card companies from fining merchants for offering discounts to customers who use a credit card that costs less for the merchant to accept. The legislation would also allow merchants to set minimum or maximum transaction amounts without being fined or penalized by credit card companies; prohibit credit card companies from forcing store owners to accept their credit cards at all of their store branches should they choose to accept them at one; prohibit credit card companies from mandating the acceptance of all of their different types of cards if the merchant chooses to accept one of them; and prohibits central price setting by the major credit card companies.

The credit card industry is typically regulated by the federal government, which enacted the Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act in May 2009. While the bill only went into effect last month, many argue that the credit card industry has already found routes around its provisions. Furthermore, the legislation included no measures aimed at addressing interchange fees, or swipe fees, charged of merchants whenever a customer uses a credit card for payment.

Should the Vermont General Assembly approve the legislation and sign it into law, the state would become the first to regulate these fees.

The passage of the bill through committee drew cheers from the Merchants Payments Coalition, an association representing businesses and advocating further reform to rein in credit card interchange fees. "We applaud Senate President Pro Tem Peter Shumlin, Majority Leader John Campbell, Judiciary Committee Chairman Richard Sears, Assistant Minority Leader Kevin Mullin and the Vermont Senate Judiciary Committee for taking this critical stand on behalf of Vermont businesses and their customers," said Lyle Beckwith, senior vice president of the National Association of Convenience Stores, on behalf of the coalition. "Credit card swipe fees are one of the largest expenses small businesses face and these huge, hidden fees hurt small businesses and consumers at the very time we're relying on them to rebuild our economy."

Jacob Barron, NACM staff writer

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Perini Files Big-dollar Mechanic's Lien Against Vegas Developer

The Perini Building division of Tutor Perini Corp. has made good on its threat to file a near half-billion-dollar lawsuit against the developer of the massive CityCenter complex on the Las Vegas Strip.

As speculated in last week's NACM eNews, Perini filed a $492 million mechanic's lien prior to month's end against MGM Mirage in connection with a dispute over the $8.5 billion project. Perini, named Nevada's top contractor in recent years by publications Southwest Contractor and In Business Las Vegas, alleges MGM Mirage abruptly stopped paying for work already completed, specifically at the Harmon Hotel portion of the mixed-use City Center. The suit also contains Perini's allegations that MGM Mirage made thousands of change orders on the project's design well after an agreed-upon deadline. For its part, MGM Mirage has publicly threatened its own suit against Perini, which served as general contractor, amid allegations of numerous design and construction defects.

The legal spat is the latest in a series of trouble signs for the epic venture, the most expensive private development in U.S. history at its inception. Though the opening of its CityCenter's casino (Aria Resort & Casino) and various retail offerings was hailed as a victory for the previously struggling MGM Mirage, the project had to deal with a national economic meltdown shortly after construction began, a housing and commercial real estate downturn that forced a surge in Las Vegas vacancy rates and a freefall in values, a controversy surrounding the perceived high number of worker deaths in the construction of the development and the downsizing of the Harmon Hotel to 26 stories from original plans to build nearly 50 stories.

Although the amount of the mechanic's lien represents less than 10% of the total project, it will still stand as one of the most expensive filings in the United States. And while bad blood appears to be quickly percolating between Perini and MGM Mirage, several familiar with both the companies and the project believe the sides will come to a settlement without a drawn-out legal battle. Randy Clark, assistant division manager of credit with Young Electric Sign Company, a Nevada-based company that provided signage for the project and is still owed some payments for their work, said the companies' reputations indicate the sides will come to a somewhat amicable agreement sooner than later, despite the big price tag on the lien. Additionally, he believes subcontractors will be paid the vast majority, but likely not all, of what they are owed for work on CityCenter.

Representatives from MGM Mirage and Perini have continually refused to answer NACM telephone queries about CityCenter.

Brian Shappell, NACM staff writer

Join the CFDD Network

CFDD exists, in part, to dynamically impact NACM's global vision by being the leader in educational programming and direction, thereby setting industry standards for professional excellence. To learn more about CFDD, click here.

Join CFDD at Credit Congress at its annual Awards and Installation Luncheon on Tuesday, May 18th! For more information, click here.

Lawmakers Eye Federal Procurement Reform to Aid Small Businesses

As Congress continues to consider measures to spur job growth, a recent hearing in the House Committee on Small Business suggested that procurement reform may be necessary to ensure that the federal government is doing all it can to get smaller firms hiring again.

Entrepreneurs who testified at the hearing noted that despite major increases in federal spending over the last decade, many small companies still struggle to win their fair share of federal contracts. Committee Chairwoman Nydia Vel√°zquez (D-NY) noted that this is especially troubling since the overwhelming majority of new jobs are created in the small business sector.

"When large corporations win federal contracts, their existing workforces take on the project, but when small firms get the work, they hire people," she noted. "Making the contracting system work for entrepreneurs is not just a small business priority, it is a jobs issue."

Although federal spending in FY 2009 hit $528 billion, audits have shown that small businesses are still being locked out of the federal marketplace. In the same period, federal agencies missed their contracting goals by $10 billion. "If that $10 billion went to small firms, they could use those funds to expand their operations and bring on new employees," said Vel√°zquez.

Witnesses in the hearing criticized the procurement system, which they said contains a series of obstacles and pitfalls that prevent small businesses from winning contracts. They also noted that agency practices, such as bundling contracts together that only larger corporations can realistically compete for, and a thinly-stretched acquisition workforce also keep smaller firms from getting the federal work to which they're legally entitled.

"For small firms trying to navigate this process, it would be hard not to conclude that the procurement system is broken," Vel√°zquez added. "It is time to ensure that federal agencies start living up to their small business contracting obligations and allow entrepreneurs to win their share of federal work."

Jacob Barron, NACM staff writer

Distressed Business Services

Many NACM Affiliates are involved in a national network to provide assistance in the rehabilitation (if possible) or liquidation (if necessary) of businesses in severe financial difficulty.

While courts can take several months or more to start a reorganization plan, NACM Affiliates can assist in getting a plan approved in as little as 30 days. Most helpful is the knowledge that experienced professionals are ready to step in at the most difficult time. NACM Affiliate staff members can serve as secretary to creditors' committees, provide other needed advisory services and are fully aware of the prevailing laws and regulations relevant to each situation.

Click here to learn more about NACM's Distressed Business Services.

Credit Problems in Portugal, Greece May Loosen Domestic Credit

Collateral damage from Greece's deep economic woes and its own lack of competitiveness both in Europe and throughout the world have now moved Portugal closer to the financial danger zone. But their losses could soon become gains for U.S. businesses.

Portugal is trying to recover from losing bond values based on escalating problems with Greece's spending and credit woes as well as the Iberian nation's escalating budget deficit. Early last week, Portugal drew scores of unwanted attention as its credit rating was downgraded by the Fitch ratings agency. Last year, Portugal's budget shortfall equaled nearly 10% of its overall income, and it is expected to balloon in the coming months. It all could result in a stronger dollar, and a subsequent rise in credit availability, should problems continue in the south European region.

"Even though Portugal is a minor player in the eurozone, let alone the world economy, I think people's confidence in the euro will continue to go down," said Xiaobing Shuai, senior economist of Chmura Economics & Analytics. "This actually is good for the dollar to strengthen its value. I can see international capital increasingly moving away from Europe to American and Asia, especial if the credit rating for Portugal is again downgraded. So, all of that will increase the credit available for U.S. businesses."

Still, though it holds the dubious distinction of carrying the second largest deficit in Europe, Portugal's spending and credit struggles pale in comparison to that of Greece.

"We are concerned about the situation [in Portugal], but as of yet, we have not seen any deterioration of payments, which continue to be relatively prompt," said ISP Technologies Inc. General Credit Manager Gordon Miller. "We did manage to reduce terms over the last 12 months, depending on the customer...and we will not agree to any extensions of terms in Portugal. We will continue to monitor the situation." Miller added ISP carries little exposure in Greece, "nor do we want to pursue any there."

Still, there are some signs of hope in Portugal, and even Greece in recent days. Battling political parties in Portugal agreed on a financial austerity plan, which includes freezing the pay of about 700,000 federal workers and reducing budgets for both military spending and social welfare programs. Additionally, despite weeks of feet dragging, the European Union tepidly agreed to a support program, which will largely aid Greece in the near term.

"I think that recent developments about financial support for Greece will provide a positive spill over to Portugal, keeping a lid on its public borrowing costs," said Andrea Appeddu, an associate economist based in Moody's London office. "The recent Fitch rating downgrade must not be overrated. Portugal needs structural reforms to improve its external competitiveness. Its double deficit (fiscal and external) is a story which we have seen in Portugal for the whole decade. They need long-term commitment to radically restructure their economy. Investing in productivity is the only hope that Portugal has in order to experience long-term growth. But it's the same problem as Spain, Italy and Greece. All the Mediterranean economies suffer this lack of external competitiveness and weak public finances."

Brian Shappell, NACM staff writer

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U.S. Chamber Steps Up Opposition in Wake of Financial Reform Committee Passage

Shortly after the Senate Committee on Banking, Housing and Urban Affairs passed Chairman Christopher Dodd's (D-CT) sweeping financial reform bill with only 21 minutes of markup, the U.S. Chamber of Commerce stepped up its criticism of the bill and increased its calls for leaner, bipartisan legislation.

Of greatest concern to the U.S. Chamber is the provision in Dodd's bill that would create a new consumer regulator, dubbed the Consumer Financial Protection Agency (CFPA).

"We're taking our call for bipartisan, balanced legislation to the states during the congressional recess, underscoring with the American people that we need financial reform that protects consumers without stifling job growth," said David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness. "The CFPA as presented in the Dodd bill would make it harder for small businesses to obtain credit and is the wrong approach to consumer protection. Rather than directly addressing the failures in regulation that contributed to the current economic crisis, the CFPA would simply add a new agency with unprecedented power on top of a broken regulatory system."

The Chamber argues that a more effective solution would be to create a consumer protection council that would ensure coordination among regulatory and enforcement actions by federal financial regulators. This council would also aim to eliminate regulatory gaps, prescribe consistent disclosure and examination standards and identify areas in which new regulations are necessary. It would, however, lack the sweeping power currently granted to the CFPA under Dodd's bill, including the right of the agency to create and enforce its own rules.

"The CFPA would significantly grow our government and saddle America's job creators with more federal bureaucracy," Hirschmann said. "The current proposals in Congress would also create a fragmented system of regulation that adds inconsistencies and confusion in regulatory standards. This would not improve consumer protections or simplify disclosures; it will make them worse."

Dodd has noted that a full financial reform bill could be ready in the next month or so. Negotiations are ongoing between Dodd and the G.O.P.

Jacob Barron, NACM staff writer

 

To view past eNews issues or to visit the NACM Archives, click here.

 

 

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