eNews will take a break next week for NACM's 119th Credit Congress in St. Louis. The next issue of eNews will be published on May 28, 2015. For the latest credit news, visit NACM's Credit Real-Time blog.

 

In the News

May 14, 2015

Trade Promotion Authority for Obama Stymied in Congress, TPP Prospects Hang in Balance


Bankruptcy Roundup: RCC Consultants, American Eagle Energy Corporation and Magnetation


Small Businesses Optimistic Despite Concerns about Economy


PMI Roundup: Global Service Sector Maintaining Stable Growth


Trade Promotion Authority for Obama Stymied in Congress, TPP Prospects Hang in Balance

One day after the Senate blocked legislation to establish trade promotion authority that the White House needs to finish off the multilateral Trans-Pacific Partnership (TPP) free trade agreement, Congressional sources say new negotiations will quickly spawn a revised bill. Granted, many of the same sources confidently claimed in April that trade promotion authority had more than enough support to sail through the Senate on its first attempt.

Senate lawmakers voted 52-45 Tuesday to avoid cloture on the legislation—but 60 votes were needed to move the legislation forward. Congressional Republicans previously used similar tactics when trying to obstruct Obama-led efforts in recent years, but this time, the effort was led primarily by liberal Democrats and current buzz politician/media darling Elizabeth Warren (D-MA). Though the White House, moderate lawmakers and the greater business community (including small business advocates) call such opposition misguided and largely based on inaccurate analysis, Senate opposition effectively killed the original legislation. Opponents objected to the secrecy with which the 12 nation TPP conducted negotiations, and they sought amendments to include an extraordinarily high level of guarantees for U.S. workers. According to widespread reports, sources noted that some of the more tenable domestic worker guarantees will be added to a new deal, but many of the most ambitious ones that would have courted rejection by other nations as well as demands on currency manipulation activity are unlikely to appear in the revised version of the authority legislation.

President Barack Obama’s inability to garner the trade promotion authority held by every other president since the 1930s would render the potential of the United States remaining part of the TPP all but fantasy. The TPP is a planned centerpiece of Obama’s second term, one designed to open up markets primarily in Southeast Asia. Many of these markets are taking manufacturing and call-center jobs formerly popular in China and India, a shift that has given rise to consumerism among demographics in these markets. With even the smallest U.S. businesses exporting now, a trend that took flight following the recession and weak rebound, the TPP is seen as a way to better reach these emerging markets for domestic companies of all sizes, as well as a way to dilute Chinese economic influence and dominance in the region. The TPP involves a number of emerging Southeast Asian nations as well as Canada, Japan, Chile and Peru.

Trade promotion authority is a working relationship between the president and Congress. It establishes guidelines for the U.S. in various international trade negotiations, establishes a framework for Congress and the executive branch to more quickly work out agreements, and includes legislative procedures allowing the president to submit bills implementing trade agreements for a rapid, up-and-down vote without the threat of a wave of amendments or filibustering. The “fast track” nature widely discussed, often erroneously, of late does not mean Congressional lawmakers have no oversight whatsoever. Trade promotion authority was last in place in 2007 during the Bush Administration—perhaps not coincidentally, negotiations for new trade deals have languished since that time.

 

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Bankruptcy Roundup: RCC Consultants, American Eagle Energy Corporation and Magnetation

Total bankruptcy filings in the United States decreased 12% in April 2015, year-over-year, according to Epiq Systems data. Overall, bankruptcy filings totaled 77,884, of which 2,612 were commercial filings, representing a 23% decline from the 3,401 business filings recorded in April 2014.

Total commercial Chapter 11 filings dipped 41% from April 2014 to 405 filings last month. Compared with March this year, commercial filings and commercial Chapter 11 filings each registered a 2% decrease.

The average nationwide per capita bankruptcy-filing rate in April was 2.74, up from 2.65 for the previous three months. States with the highest rates were Tennessee (5.63), Alabama (5.24), Georgia (4.85), Illinois (4.66) and Utah (4.31).

Recent Chapter 11 filings of note include the following:

  • RCC Consultants, an engineering and consulting firm in the critical-communications industry, has filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey. The company has between 50 to 99 creditors with assets and liabilities valued between $1 million and $10 million.
  • American Eagle Energy Corporation and its wholly-owned subsidiary, AMZG, Inc., have filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Colorado. American Eagle will continue to operate as debtors-in-possession.
  • Magnetation LLC and its subsidiaries have filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Minnesota after reaching a restructuring deal with senior bondholders. Its assets were listed between $100 million and $500 million and liabilities between $500 million and $1 billion.

 

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Small Businesses Optimistic Despite Concerns about Economy

Although the Wells Fargo Small Business Index fell seven points in the second quarter, most businesses say they’re doing well financially, according to the firm. Similarly, April’s Small Business Optimism Survey by the National Federation of Independent Business (NFIB) reflects a rise in optimism.

With a 13-point gain during the first quarter, the Wells Fargo index remains at a relatively high level, but it reveals that concerns about the overall economy have grown. And although nine out of 10 components in NFIB’s survey increased month-over-month, it remains below its historical average. As the survey moved up 1.7 points to 96.9, real sales expectations was the lone wolf with a 3-point decline. It has fallen to a net 10% of owners expecting gains, which continues the trend of the 5-point decline in January and February and a 2-point decline in March.

"Optimism may have seen a slight jump from last month’s weak numbers, but there was not an especially large gain in any area except for an improvement in profit trends,” said Bill Dunkelberg, NFIB chief economist. “Overall, the index remains steady, but it is still a few points below the average and is showing no tendency to break out into a stronger pattern of economic growth. Solid economic growth would require good performance from both big and small firms and that will likely be elusive this year.”

According to Wells Fargo’s index, business owners reported less difficulty obtaining credit and an increasing demand for it. Those that expect credit conditions to ease further rose two points to 38%, and those that anticipated applying for new credit held at 18%, still well ahead of the level a year ago. A combination of leaner operations and opportunities to lower interest rates led to more business owners reporting cash flow improvement over the past year, Wells Fargo said. “The proportion of firms rating their cash flow as very good or somewhat good rose four percentage points in the second quarter to 58%, which is the highest reading in seven years. The proportion rating cash flow as somewhat poor or very poor fell one point to 20%, which is the lowest this series has been since the fourth quarter of 2007.”

In NFIB’s survey, 4% of owners reported their borrowing needs were not met, down one point and historically low. However, 31% were satisfied, and 53% reported not requiring a loan. “Only 2% reported that financing was their top business problem (down one point) compared with 22% citing taxes, 23% citing regulations and red tape and 11% citing weak sales,” NFIB said. Owners who borrow on a regular basis fell two points to 31%, and the average rate paid on short maturity loans fell 70 basis points to 5%.

“Loan demand remained historically weak,” the organization said. “The net percent of owners expecting credit conditions to ease in the coming months was a negative 4%, a two-point improvement. Interest rates are low, but prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending.”

 

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PMI Roundup: Global Service Sector Maintaining Stable Growth

The global service sector continues to grow at a steady pace despite posting a slightly lower index in April, according to JPMorgan Global Services PMI. At 54.9, April’s rate of expansion was “broadly similar to March’s six-month high.”   

“This is likely to provide a steadying factor to Q2 global GDP growth following the modest slowdown seen in the manufacturing sector,” said Joseph Lupton, senior economist at JPMorgan Chase & Co. “With business optimism rising and jobs growth strengthening, the service sector is likely to maintain its solid stable course in coming months.”

The U.S. service sector posted at 57.4 in April, a nearly two-point decrease from March. However, this month remains as the second-highest rating since last fall and is above the average for this year’s first quarter. Markit Chief Economist Chris Williamson said the growth in the U.S. service sector is “evidence that the economy is far from stalling. … The robust growth and hiring, as well as the upturn in prices, keeps alive the possibility of the Fed hiking rates later this year, perhaps as early as September if the data flow impresses in coming months.”

Countries in Europe showed increases as well, with the service sector registering 54.1 in April—a slight decrease from 54.2 posted in March. The Eurozone Services Business Activity Index cited Ireland “at the top of the growth ratings” and noted that the rate of expansion in Spain is nearing an eight-and-a-half-year record.  Both Italy and Germany are steady, while growth in France has started to level out.   

According to HSBC China Composite PMI, the service sector activity in China reached 52.9 and has “increased solidly over the month. Furthermore, it was the strongest expansion of business activity for service providers in four months.”

India’s service sector fell to 52.4, a three-month low from March’s posting of 53. However, there were moderate increases in services output and new orders. On a positive note, Markit Economist Pollyanna De Lima said, “Panelists’ confidence regarding the one-year outlook for activity improved, indicating that firms are optimistic the current deceleration in growth is a temporary soft patch.”

Brazil’s service sector, however, hit a 72-month low in April (44.6). The HSBC Brazil Services PMI reported that private sector new business fell at its sharpest pace since April 2009, and employment dropped for a second consecutive month. “April’s alarming PMI figures for the Brazilian services simply add to the malaise encompassing the sector,” said De Lima. “Not only did output and new business contract at the sharpest rates in six years, forward-looking optimism was among the weakest in the history of the series. … Latest data generally suggest more challenging times ahead, with little prospect of a meaningful recovery over the coming quarter.”

 

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