September 8, 2011
The National Association of Credit Management (NACM) urges members to write to their representatives in Congress, asking them to support H.R. 2533, the Chapter 11 Bankruptcy Venue Reform Act of 2011.
The bill would require corporations to file reorganization cases in the judicial district where they have their principal place of business or principal assets. Ideally, this would end bankruptcy "forum shopping," whereby debtors seek to file in a jurisdiction that's sympathetic to their needs but far from the company's employees, assets and connecting community. Smaller firms stand to benefit greatly from the provisions contained within the Chapter 11 Bankruptcy Venue Reform Act, since this practice disenfranchises smaller creditors by making it more difficult for them to participate in the filing process, ultimately reducing a trade creditor's chances of recovering what they're owed.
NACM has already offered its support to H.R. 2533 and to the bill's sponsors, Reps. Lamar Smith (R-TX) and John Conyers Jr. (D-MI), but now is aiming to start a nationwide grassroots campaign among its membership to aid the bill's passage.
To participate, first find your representative's contact information here (be sure to use your company's address, rather than your personal address, when determining which congressperson to write to). Then go to NACM's Advocacy page and click on "Advocacy Documents" in the left-hand menu. There you'll find a template letter that you can edit with your representative's contact information, as well as any personal experience you might've had with venue shopping. Be sure to edit the letter before mailing, or emailing it, since these letters hit hardest when they've been written by actual constituents, rather than just a generic form letter.
If you have any questions, please don't hesitate to contact Jacob Barron, NACM staff writer and government affairs liaison at firstname.lastname@example.org.
Write today and strike a blow for the nation's trade credit grantors!
Jacob Barron, CICP, NACM staff writer
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WARN Act Lawsuit Something Credit Professionals, Especially Creditors' Committee Members, Should Follow
That yet another solar energy firm filed for Chapter 11 bankruptcy protection early this week, one seemingly with not a strong chance of success given industry challenges, was far from unique given that three have done so within the last month alone. What was of interest was that an employee lawsuit filed, if successful, could drain significant money from the pool available before unsecured creditors can make up any of their outstanding exposure.
Solyndra LLC officially filed for Chapter 11 in the U.S. Bankruptcy Court in Delaware early Tuesday after announcing it would do so late last week. It came just days after SpectraWatt Inc. and Evergreen Solar each filed for Chapter 11 after becoming "noncompetitive" with Asian manufacturers, especially those based in China, that continue to deeply undercut American solar producers on pricing/overhead.
The announcement by Solyndra, a solar energy products firm which gained notoriety for garnering more than a half-billion in federal aid money and a well-publicized visit to its California base by President Barack Obama in 2010, came with almost no notice. As such, employees quickly filed a lawsuit against Solyndra, saying it violated the Worker Adjustment and Retraining Act (WARN) by not notifying some 1,000 workers with enough lead time of its plant closure. The WARN Act requires a company to give workers 60-days written notice before closing a plant or factory. There are, however, loopholes and conditions when a company would not be held to the standard. Solyndra sources intimated Wednesday that it should not be liable under the WARN Act because the business was rapidly deteriorating, a defense that has worked in similar employee lawsuits tied to some past bankruptcy cases.
Bruce Nathan, Esq. of Lowenstein Sandler PC told NACM that it is important for the creditors' committee to get involved in the fight against the employee lawsuit because, if successful, the employees would have priority over them.
"If not defended, it could have a very negative impact on bankruptcy," said Nathan. "It's bad for creditors because it builds administrative claims and hurts the unsecured because it reduces or eliminates the recovery they would otherwise get. A good creditors' committee, in conjunction with the debtor, should try to make sure this is defeated. There are defenses to this sort of lawsuit."
As noted in previous editions of eNews and the newest edition of Business Credit magazine, the green/solar energy industry is facing significant problems and a high risk for new bankruptcies on higher competition from abroad, a glut of producers in the United States for what is still a niche market and the general economic malaise threatening companies in many industries.
Brian Shappell, NACM staff writer
Less Than Two Weeks Until FCIB's New York International Round Table
On September 21, join us as Dr. Matthew Higgins, Federal Reserve Bank of NY, delivers this year's keynote address, Economic Overview 2011.
- How will the Federal Reserve's monetary policy affect the FX value of the dollar and your investments?
- What are the short and long-term prospects for the U.S. economy?
- How will other issues of global concern, such as capital standards for international banks, be addressed?
To learn more about FCIB's NY International Round Table and to register, click here.
Special Discount Rates Available for FCIB and NACM Members.
Amid what has now been a couple of years of anger at the ratings industry's "Big Three"—Moody's Investment Services, Fitch Ratings and Standard & Poor's—the iron has rarely been hotter for a new competitor to strike. One China-based firm appears ready to do just that with a little help from friends based within other emerging economic powerhouses, which could have an impact on U.S. creditors in the not-too-distant future.
Dagong Global Credit Rating Co. is making rumbles in the international press as it has become apparent that they are testing the waters to create a multi-agency rating company that spans several nations. Dagong reportedly has been reaching out to ratings agencies in its fellow BRIC nations (Brazil, Russia and India) as well as to ones in South Korea and even the European Union, among others, to gauge interest in creating a credible competitor to the three dominant, U.S.-based ratings agencies. Each of the three has been criticized tremendously and repeatedly for its failings in ratings outlooks during the run-up to the global economic downturn, as well as for some of its ratings downgrades in recent months, especially for sovereign credit ratings in European nations, that are perceived as unnecessarily exacerbating existing problems. NACM Economist Chris Kuehl, PhD said it's worth noting that, in a method similar to how Moody's built its once-solid credibility, there are several highly credible former economic officials (central bankers, finance ministers, etc.) rumored to be connected to the effort. Kuehl says there's at least a 50-50 chance that Dagong will be successful in launching a competitive super-agency.
"As long as you have a tremendous amount of uneasiness, people start thrashing around for information. They can't get enough," he said. "What you've seen is a weakening in the reputation of S&P and, to a slightly lesser extent, the other two as well. So, there is an opening for it. I've certainly heard waves of frustration building. There's also that the big fiasco with rating the U.S. and nothing happening with bond markets that suggests, 'who is paying attention to your ratings at this point?' It's as if the bond market was going, 'I don't care.' There has always been unhappiness from emerging nations not thinking they are getting the right attention they deserve or the right information on companies in those areas. There is now an opening."
Kuehl noted that credit professionals need to take note because, if institutional investors start to believe a fourth agency is valuable, then it indeed IS valuable.
"It's certainly going to become something people pay attention to if they call a few things accurately, especially if it's not the way the big three are leaning," Kuehl said. "Some of these agencies have made their money by being right about a certain niche...We'll probably know fairly quickly if some can combine their efforts. It's now or never."
Brian Shappell, NACM staff writer
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The agreement to raise the debt ceiling last month generated as many questions as it did answers. The Budget Control Act of 2011 not only bought the government some more room in terms of borrowing, but it also enacted a number of stipulations that would lead to further increases in the debt ceiling on the condition of further spending cuts.
According to Pace, LLP, a government relations firm whose managing partner Jim Wise is NACM's lobbyist, the agreement to raise the government's borrowing limit "ensured that the fall will also be dominated by debate and further legislative action on the federal budget. In so doing, the Budget Control Act also clouds the FY2012 appropriations process." Indeed, while the Act immediately raised the debt ceiling by $900 billion, the increase was matched in budgetary savings through spending caps placed on federal spending over the next decade. "So, as to protect the recovering economy, the spending caps are back-loaded with only modest deficit reduction in FY2012 and FY2013 and more reductions in the out years," said Pace. "These cuts are being transmitted to the Appropriations Committee and appear to be an overall reduction."
Furthermore, the Act created the highly-publicized "super committee," more officially referred to as the Joint Select Committee on Deficit Reduction. The committee is tasked with generating deficit reductions between $1.2 and $1.5 trillion over the next 10 years. Congress must pass these reductions by December 23, 2011, or trigger the Act's sequestration provisions, which require automatic spending cuts. "It should be noted," said Pace, "that sequestration cuts would not take effect until FY2013. Half of these cuts, roughly $55 billion, will come from security (defense, homeland security and foreign affairs) spending and half (another $55 billion) from non-security spending." Many entitlement programs are exempt from sequestration, including Medicaid, SCHIP, TANF, SNAP, child nutrition, Social Security and other programs. Medicare would be subject to a 2% cut in provider and insurance payments.
Other provisions in the Act require Congress to vote on a Balanced Budget Amendment, additional spending to reduce Medicare and Social Security payment fraud, and an increase in spending on Pell Grants and student loans.
The "super committee" is to develop its recommendations by November 23, and Congress must vote yes or no on the resulting bill without amendments, said Pace, which noted that several other deadlines exist for the committee and their work:
- By September 16, the super committee must meet. In fact, the super committee has announced plans to meet today.
- By October 14, each committee in the House and Senate may send recommendations to the super committee for consideration.
- By November 23, the super committee must approve by a majority vote a report and proposed legislative language for a deficit reduction plan. If approved the legislative language would be introduced the following day.
- By December 2, the super committee must provide its full report to Congress.
- By December 23, the House and Senate must approve (or at least vote on) the recommended deficit reduction plan without amendment.
- By January 2, if the recommendation of the super committee is not passed and signed by the president, then the president will still have the ability to raise the debt ceiling, but sequestration will begin as calculated by the Office of Management and Budget. Although again sequestration cuts wouldn't actually take effect until FY2013 and as noted above, a number of entitlement programs are exempted.
Stay tuned to NACM's eNews for further updates on government spending and the ongoing debt drama.
Source: Pace, LLP and NACM
Best-in-Class Service from NACM's Mechanic's Lien and Bond Services (MLBS)
MLBS' newly redesigned 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.
A roundup of economic activity completed about every six weeks by the Federal Reserve found that about half of its 12 districts were experiencing slow or stagnant economic growth. There were even some reports of slowing growth during the period in some places, including the Philadelphia district, during the period that began in mid-July and ended in late August.
The Fed's Beige Book report contained a bit of the same old story: commercial and residential real estate were considered weak, an employment growth rebound has yet to come to fruition and business loan demand is far from robust. What is of note is the continued slide of the manufacturing sector, which had carried economic growth during much of the last two years. Fed contacts illustrate that conditions remain mixed, but the pace of activity has slowed in many districts, including several key ones. Notably, the pace has dropped off in the key New York, Philadelphia and Richmond districts. Districts such as Boston and Dallas also noted a decline in demand from European-based customers. However, at least four districts (Minneapolis, Kansas City, San Francisco, St. Louis) reported increases, albeit mild ones.
Additionally, contacts told the Fed that an uptick in economic uncertainty and the rollercoaster-ride of the stock market has caused them to downgrade their near-term outlooks. In a spot of good news, it appears credit quality has improved and availability has not worsened, the Fed noted.
Meanwhile, the agriculture sector, like most others, appeared to be a mixed bag as well. Hot and dry weather has been causing problems for producers in the Chicago, St. Louis, Kansas City and, especially, Dallas districts. Still, those who've weathered overly dry or, on the opposite end, wet conditions from Hurricane Irene, have high values for their products.
Brian Shappell, NACM staff writer
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C4F: Employment Connections for the Business Credit Community
The U.S. Treasury announced last week that an additional 50 community banks received the largest single batch of Small Business Lending Fund (SBLF) capital yet. The Treasury has provided $767 million under the SBLF, bringing the program total to 130 community banks having received more than $1.8 billion under the fund.
Disbursements are expected to continue in the coming weeks.
"These funds will provide a powerful incentive for community banks to expand their lending to small businesses, spurring new investment and job creation" said Deputy Secretary of the Treasury Neal Wolin. "Breaking down barriers to credit will provide critical support to Main Street entrepreneurs looking to invest in their local communities, grow their businesses, and put more Americans back to work."
The Treasury has more heavily touted its focus on small businesses recently, due to the fact that smaller firms employ roughly one-half of all Americans and account for about 60% of gross job creation, which officially stalled last month. August's unemployment report showed that the unemployment rate held tight at 9.1% and that the economy officially created zero jobs during the sampling period.
The SBLF aims to jump start job growth by allowing small business owners to more easily access capital, something that was especially difficult for small businesses during the recession. But this is, according to the Treasury, only one part of the Obama administration's approach to jobs. The administration has also supported 17 direct tax breaks that provide tax relief of more than $50 billion for small businesses. "The administration has also worked with Congress to extend and expand existing Small Business Administration loan programs that helped put more than $42 billion in the hands of small businesses and deliver other important benefits to help small businesses expand and hire," said the Treasury.
This approach might be similar to what we'll hear tonight as President Obama lays out a new job plan before a joint session of Congress, but no matter what he says, it isn't likely to comfort Republican lawmakers, especially not House Small Business Committee Chairman Sam Graves (R-MO). "With unemployment at or above 9% for 26 consecutive months and zero jobs created in August, it should be more obvious than ever to the Obama administration that we are on the wrong path. It is certainly clear to the 14 million Americans who have been handed a pink slip and have been out of work for months on end," said Graves, noting that while the GOP and the administration have the same goals, they have massively different beliefs about how to achieve them. "Small business growth is the answer to our unemployment crisis. Not more Big Government spending plans, not higher taxes and certainly not more onerous regulations. We must put free market solutions into place that will unleash private sector ingenuity and get Americans back on the job," he added.
Jacob Barron, NACM staff writer
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