June 22, 2010
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The bell appears to be tolling for the Sarbanes-Oxley Act (SOX), or at least for the provisions that apply to small businesses.
As lawmakers continue to reconcile the competing House and Senate versions of the financial reform bill, officials in the Senate recently approved a SOX exemption for small businesses with less than $75 million in market capitalization. The House had previously agreed to an identical provision that exempts small businesses from SOX Section 404(b), which requires a third-party audit of a company's internal controls over financial reporting.
SOX advocates, namely the Center for Audit Quality (CAQ), the CFA Institute and the Council of Institutional Investors, had earlier sent a letter to Congress urging them to scrap the exemption in the interest of investor confidence. "We ask that you exclude from the final bill an amendment in the House Act that would permanently exempt public companies with less than $75 million in market capitalization from compliance with Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX)," said the letter. "Section 404(b) requires an independent audit of a public company's assessment of its internal controls over financial reporting (ICFR). We dispute the notion that investors in smaller public companies do not deserve the same financial reporting safeguards as investors of large public companies."
Their request was ultimately drowned out by fears that the burden of SOX compliance on small businesses would stifle job creation, which continues to be the top priority for every official on Capitol Hill.
Even if the panel had voted not to exempt small businesses from Section 404(b), the Act itself still might soon face major changes from the Supreme Court, which is expected to rule on SOX's constitutionality before the end of June. In Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB), plaintiffs claim that the PCAOB, a governing body created by SOX, violates the Constitution's Appointments and Separation of Powers Clauses. These clauses require that important federal officials be appointed by either the president or by Cabinet heads, while the PCAOB's members are picked collectively by commissioners at the Securities and Exchange Commission.
Jacob Barron, NACM staff writer
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Despite an ongoing recession and subsequent budget woes throughout the nation, especially in warm coastal markets and the upper Midwest, promoting green construction and retrofitting in commercial and public buildings dominated the U.S. Conference of Mayors policy meetings this month.
The U.S. Conference of Mayors (USCM) confirmed that its membership voted in favor of a resolution calling on municipalities nationwide to adopt the International Green Construction Code (IGCC) on all new construction. The code, developed in accordance with several organizations including the International Code Council, which established a developer-friendly set of green standards with the National Association of Home Builders in recent years, seeks to improve energy efficiency, safety and health benefits at commercial, public and some residential buildings. Roger Platt, senior vice president of Global Policy & Law from the U.S. Green Building Council (USGBC), lauded the effort as "smart public policy" that will enable more market investment and growth.
"USCM's set of resolutions calls on mayors nationwide to place special emphasis on ensuring the benefits of green buildings are enjoyed by the sectors that need it most," said Platt. "USCM's endorsement of the IGCC is a strong statement of support for what we are seeing as the next critical step in the green building movement."
The Mayors also adopted several other green-friendly resolutions, including one designed to set up Green Financial Districts to fund efficiency-based retrofit projects at existing commercial and public buildings.
The heavily green agenda reinforces the growing potential in sustainability-driven commercial real estate construction, a featured topic in the current (June 2010) issue of Business Credit. Additionally, ongoing government support from Capitol Hill down to the municipal level is spurring more partnerships designed to promote such projects. One recently expanding program highlighted by USGBC features a partnership between the Energy Center of Wisconsin and the firm ComEd. Their program, which offers incentives for sustainability driven development of retail, restaurant, hospital and school structures, has been expanded to a maximum amount of $150,000 per project just one year after its inception.
Brian Shappell, NACM staff writer
Things Are Looking Up, But Don't Let Up in Getting Paid
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Pop quiz: You just read a press release telling you that your customer has filed a Chapter 11 case in a distant bankruptcy court.
What do you do?
Such a scene has played out more and more frequently in offices across the country since 2008. In the aftermath of the financial crisis, business bankruptcy filings climbed well beyond their pre-2005 levels, when overall petitions saw a steep drop due to the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Business bankruptcies in fiscal year 2009 hit 58,721, marking a 52% increase over the same figure in 2008 and a 72% increase over the same figures before BACPA enactment.
No matter how common Chapter 11s and other types of bankruptcies become, reacting to the news of a customer filing can still be daunting. Any number of different steps can be taken by the creditor company to position itself for the best possible recovery on its claims, but the question of where to begin can beguile even the most seasoned professionals. To learn what to do immediately after your customer files, join Mark Berman, Esq. of Nixon Peabody LLP on June 30 at 3:00pm EST for the NACM teleconference, "What to Do When Your Customer Files Chapter 11."
Berman is a fellow of the American College of Bankruptcy and has been listed in the Best Lawyers in America since 1989 and in America's Leading Lawyers, published by Chambers & Partners USA, since 2004. A frequent presenter for NACM programs, Berman's teleconference will review the issues a credit manager should consider upon learning of a customer bankruptcy and highlight the precise steps they can take to enhance recoveries.
To learn more about this teleconference, or to register, click here.
Jacob Barron, 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.
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For more information on NACM's MLBS, click here.
As a battle between the owner and general contractor of the $8.5 billion CityCenter development in Las Vegas continues to percolate, it appears subcontractors will be able to largely avoid the western-style standoff and, perhaps, some financial woes.
Sources with MGM and multiple subcontractor organizations told NACM that MGM Resorts International (MGM), whose board and shareholders on June 15 approved a change in its name from MGM Mirage effective immediately, will pay subcontractors for all legitimate claims of money owed to them for work on the CityCenter project.
The source at MGM, which still faces a $492 million mechanic's lien filed by Perini Building, said the pace of payments depends almost solely on how quickly the subs turn around documentation and/or billing materials. Discredited media reports speculated such payments could be held up until November. The source alleged they are taking this route with struggling subs because Perini badly mishandled its own paperwork for billing to the tune of 300,000 haphazardly organized documents strewn about in dozens of banker's boxes.
Randy Clark, of Nevada-based Young Electric Sign Co. (YESCO), which worked on the CityCenter project, said subcontractors he knows appear somewhat relieved by the development, and that he has never seen a company take this kind of approach when a hefty mechanic's lien is involved. Clark noted that it appears MGM officials "are going to try to be good local corporate citizens."
Perini, which previously met with Nevada Gov. Jim Gibbons (R) without MGM and called for the corporation to pay the subcontractors despite the lien, was not invited to the subcontractors meeting. MGM Mirage has alleged the general contractor failed to even present MGM with a final bill before filing the record mechanic's lien and botched the construction of CityCenter's Harmon Hotel so badly that it needed to be reduced by more than 20 floors from its original design.
For its part, Perini alleged MGM abruptly stopped paying for work already completed earlier this year, made thousands of change orders on the project's design well after an agreed-upon deadline and is trying to buy time because of its financial struggles of late. Perini said nearly $400 million of its mechanic's lien filing represented what was owed to subcontractors.
Greg Powelson, director of NACM's Mechanic's Lien & Bond Services, called the ongoing spat "a mess" and said MGM and Perini were likely still in the first stages of an 18- to 24-month process. Like disputes with other massive Las Vegas projects of the past such as Fontainebleau and the Venetian, the situation doesn't appear to be one that will be fully settled quickly.
Brian Shappell, NACM staff writer
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Democratic lawmakers recently failed to rack up the 60 votes necessary to end debate on a new jobs bill that includes several measures geared toward helping small businesses. After a 56-40 vote on a substitute amendment proposed by Sen. Max Baucus (D-MT) that fell largely along party lines, Senate leaders returned to negotiations on H.R. 4213, known as the American Jobs and Closing Tax Loopholes Act of 2010.
The bill was introduced by Rep. Charles Rangel (D-NY) in December 2009 and passed in the House of Representatives two days later. The Senate then passed an amended version, which now has to be reconciled with the House version. In its original form, the bill would've offered $18 billion in various tax breaks to American businesses and extended the Small Business Administration's (SBA's) loan programs while eliminating fees for certain SBA loans and increasing government loan guarantees.
Major disagreements arose as to how the cost of the bill would be covered. GOP lawmakers and, specifically, an amendment by Sen. John Thune (R-SD), wanted funds from the American Recovery and Reinvestment Act (ARRA), originally passed in February 2009, to pay for the bill, but Democrats balked at the suggestion. "The Recovery Act is working," said Baucus, citing figures from the non-partisan Congressional Budget Office (CBO) that indicated policies in the ARRA had increased the number of people employed by between 1.2 and 2.8 million. "And the Congressional Budget Office projects that the Recovery Act will continue to create jobs. CBO projects that the Recovery Act will create the most jobs in the third quarter of this year. And then it will begin to taper off."
"We should not want to cut that job creation off," he added. "That is what the Thune amendment does."
Baucus' substitute amendment made many concessions, most of them geared toward reducing the bill's price tag, but to no avail. Of the 40 "no" votes, 38 were Republican. Conservative Democrat Sen. Ben Nelson (NE) and Independent Sen. Joe Lieberman (CT) were the other two votes. Not voting were Kit Bond (R-MO), Robert Byrd (D-WV), Lindsey Graham (R-SC) and Pat Roberts (R-KS).
Jacob Barron, NACM staff writer
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As the Federal Reserve convenes a two-day economic policy meeting in the nation's capitol less than two weeks before Independence Day, don't expect any fireworks out of Chairman Ben Bernanke and company.
The Fed's two-day meeting will conclude June 23 with the announcement of its latest position on the federal funds rate, which presently sits at a historically low range between 0% and 0.25%. Though Bernanke has continually noted the rate would remain low "for an extended period" because of the slow pace of the economic rebound, the Fed's board has not been unanimous on the stance. Though only one Fed member has voted against maintaining the rate during meetings throughout early 2010, others have publicly hinted concerns about not increasing the rate before evidence of inflationary pressures returns to the economy.
Regardless, economists widely believe the chances of the first increase to the Fed rate in nearly three years this summer remains remote, at best. Economist Brad Hunter, of Florida-based firm Metrostudy, said the tepid economic recovery compounded by ongoing vulnerability in the real estate sector make any rate increase unlikely without a "tangible sign of inflation." That is unlikely absent of an acceleration of said recovery. Economist Ken Goldstein, of the Conference Board, predicts such a boost could be delayed until mid-2011.
"The Federal Reserve governors have a difficult dilemma this week: play golf or watch World Cup soccer," said Goldstein. "With a recipe for slower growth in the second half of 2010 and no threat of inflation heating up, there's no chance of raising interest rates."
Check NACM's Real-Time blog on Wednesday afternoon for breaking news on the Federal Reserve's decision on rates.
Brian Shappell, NACM staff writer
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