eNews October 20, 2011

October 20, 2011

News Briefs

  1. NACM Continues Push for Bankruptcy Venue Reform
  2. Fed Beige Book: What a Difference a Year Makes
  3. Ways and Means Committee Approves 3% Withholding Repeal by Voice Vote
  4. U.S., Germany Among Several Handed Some Form of Risk Downgrade
  5. Ex-Im, Nigeria Sign Agreement for Up to $1.5 Billion in Exports
  6. Chapter 9 Update: No Fury Like a Mayor and Governor Scorned


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NACM Continues Push for Bankruptcy Venue Reform

The National Association of Credit Management (NACM) continues to urge its members and all trade creditors nationwide to voice their support for a bankruptcy reform bill currently pending in Congress. H.R. 2533, the Chapter 11 Bankruptcy Venue Reform Act, is a bipartisan bill that seeks to end the practice of "forum shopping," whereby debtors can file in a district to which they have very little connection. NACM first publicly voiced its support for H.R. 2533 back in September, noting that it aligns with the trade credit community's support for sensible changes to the Code's rules governing where a debtor may file.

A hearing in the House Judiciary Committee on the legislation last month highlighted the dangers creditors face when their debtors file a Chapter 11 case in a distant court. "Small creditors must defend preference claims filed in a remote jurisdiction," said Rep. Howard Coble (R-NC), one of H.R. 2533's cosponsors. "[They're] sometimes left in the dust." Furthermore, current venue rules fly in the face of the Constitution, as noted by the bill's original sponsor, Rep. Lamar Smith (R-TX), chairman of the Judiciary Committee. "The Constitution instructs Congress to enact uniform bankruptcy laws," said Smith. "While courts of appeal are permitted to interpret Bankruptcy Code provisions differently, Chapter 11 debtors should not be able to leave their home districts and shop for a forum whose judicial precedent on bankruptcy law they happen to prefer."

Many trade creditors have already voiced their support of H.R. 2533 by sending a letter to their member of Congress, and some NACM members have received positive responses. "I agree that all businesses should have the same opportunities to present bankruptcy cases fairly. Corporations with greater resources should not be able to seek out other district courts in order to receive a more favorable outcome," said Rep. Joe Heck (R-NV) in his response to an NACM member. "The integrity of our judicial system relies upon equal justice for all...I understand your concerns and will remember your comments should this bill be considered by the House of Representatives."

Still, NACM urges all commercial creditors to draw attention to this important piece of legislation by writing their member of Congress to ask that they support the Chapter 11 Bankruptcy Venue Reform Act. Find your congressional contact information here (be sure to use your company's address rather than your home address), then visit NACM's Advocacy page to download a form letter that you can personalize to increase its effect on your representative. The more letters sent, the greater chances the bill has of moving forward and onto the president's desk for signature.

If you have any questions, contact Jacob Barron, NACM staff writer and government affairs liaison, at jakeb@nacm.org.

Jacob Barron, CICP, NACM staff writer

Want to Know When Credit News is Breaking? Subscribe to NACM's Blog. It's Simple—And Free!

Did you know it's easy to subscribe to the NACM blog for updates on when a new post has gone live? Simply type your email address into the subscribe box on the left-hand side of the blog home page. An email with easy activation instructions will follow soon after.

When news pertinent to the credit world is breaking, there's no need to wait several days or to get your information from a mainstream media source. Use the NACM blog, a free service to you, that is thinking specifically about what YOU, the credit professional, want to know and why it's important.

Fed Beige Book: What a Difference a Year Makes

The Federal Reserve's periodical roundup of economic conditions in each of its 12 districts found that growth in most areas is continuing, but at a notably weaker pace than that of the same time last year. Additionally, the word of the day appears to be "uncertainty."

The Fed's Beige Book roundup best characterized growth as "modest or slight," with a decidedly slower pace than in recent months or early fall 2010. Though not every industry sector or district reported bad news, conditions are not nearly as positive as had been expected based on long-time "expert" predictions that, by this point, the economic recovery would be in or near full swing.

Consumer spending, overall, was up for the recent six-week period ending in early/mid-October. However, much of that was driven by an increase in auto sales and tourism. Businesses also increased spending in most districts, with areas of construction and mining equipment as well as auto-related products setting the pace. Yet, in a continuation of the good news-bad news theme, Fed contacts noted particular "restraint in hiring and capital spending plans."

"A weaker and more uncertain economic outlook had increased caution and was weighing on future spending plans. Philadelphia, Richmond and Chicago [districts] indicated many retailers were reluctant to build inventories ahead of the holiday season, pointing to recent declines in consumer confidence."

Manufacturing, long the proverbial bread-winner the slow recovery, showed some improvement from the declines reported in the last two Beige Books. Again, the auto producers and suppliers of parts/products related to them, performed particularly well and made a significant difference in more than half of the Fed districts, according to the Beige Book.

On the credit front, a lengthy period of small improvements in credit conditions are receding in some areas for anyone not in the very top tier of borrowing. That said, demand remains stunted anyway, especially in districts like Chicago and Kansas City. Also important to those two districts were declines in the agriculture sector. While yields have not fallen to shortage levels, almost unilaterally yields are noticeably down for this time from one year ago. Part of this is fallout from unpredictable and uncooperative weather earlier in the year, especially in the central-south part of the United States.

Real estate, unsurprisingly, changed little as activity remains at low, weak levels. About the only positive news in the area of commercial real estate were scattered gains for manufacturing and distribution space in three or four districts, as well as some heightened investor interest in office space on each coast.

To view the entire Beige Book report, click here.

Brian Shappell, NACM staff writer

FCIB's 22nd Annual Global Conference

November 13-15, 2011

FCIB invites you and your team to gain cutting-edge information on global trade issues, trends and cause-effect relationships that are impacting businesses every day. Even if your company is not selling globally yet, this conference is a "must attend" for every credit professional or executive.

Here's an overview of this year's program:

• The New Global Financial Environment & the Power of Relationships
• Global Political Risks—Are you Covered?
• Managing Credit Effectively: Risk Management Processes in Today's Global Business Environment
• Doing Business in the Americas, Europe, Middle East and Africa, Asia Pacific and Emerging Markets
• Economics that Influence Foreign Exchange

There has never been a more important time for finance professionals to share market intelligence and plan a road map for the future.

Click here to find out more.

Ways and Means Committee Approves 3% Withholding Repeal by Voice Vote

The House Ways and Means Committee approved a bill late last week that would repeal the 3% withholding tax. The legislation is expected to reach the House floor for a full vote next week.

Should the bill be signed into law, it would eliminate a provision that requires all local, state and federal entities to withhold 3% from their payments to contractors starting in 2013. The legislation, H.R. 674, was approved by voice vote, a procedure typically used for measures that are non-controversial and enjoy widespread bipartisan support.

"Today we have taken an important step in doing what Americans have called upon Congress to do: work together in a bipartisan way to encourage job creation," said Rep. Wally Herger (R-CA), the bill's original sponsor, following its approval. "The 3% withholding tax stands in the way of jobs because it threatens to constrict the cash flow of thousands of small businesses that provide goods and services to federal, state and local government agencies. Permanently repealing this tax is an important step toward giving these businesses the assurance that it's safe to invest, grow and hire more workers. We're looking for actions Congress can take to create jobs right now. This is a win-win. I urge all members to support this legislation."

As reported in last week's edition of eNews, the 3% withholding tax was originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005. While its goal was to address the nation's tax gap, which represents the annual $345 billion in taxes legally owed but left uncollected, the provision would ultimately do more harm than good, wreaking havoc on the cash flow of companies that do business with government entities.

Prior to the markup, NACM sent a letter in support of H.R. 674 to Ways and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI). NACM has opposed the 3% withholding requirement since its enactment and welcomes the repeal bill's progress.

For more information on NACM's efforts to repeal the 3% withholding tax, click here.

Jacob Barron, CICP, NACM staff writer

Industry Credit Groups

Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.

Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:

  • Provide unparalleled networking opportunities
  • Assist in the exchange of credit information on common customers
  • Facilitate the receipt and analysis of information to make unilateral credit decisions
  • Provide a forum to discuss the latest developments on credit department procedures,
    equipment and other credit management functions
  • Support the discussion of account information and delinquent account reports
  • Adhere to federal antitrust guidelines

Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.

U.S., Germany Among Several Handed Some Form of Risk Downgrade

Though quieter and less market-riling than a move weeks ago by Standard & Poor's (S&P) to downgrade the United States' sovereign credit rating on debt and global economic slowdown concerns, another firm has issued a cut of sorts to the Americans. And the United States is not alone, as a couple of very high-profile nations in the European Union also made the dubious list.

Coface, which annually publishes the highly-touted Handbook of Country Risk outlining payment and collections trends and practices, has lowered the levels of risk assessment for 10 countries in one form or another. Coface noted the moves were made largely on the collateral damage of the EU and, to a somewhat lesser extent, U.S. economic stumbles.

As such, economic titans France, Germany and the United States were all stripped of their "positive watch" status, as were Austria, Belgium and the Netherlands. Meanwhile, Italy and Portugal were moved into "negative watch" territory, and Cyprus and Greece were downgraded outright. Coface said that spreading economic and debt issues pose a "major risk" that credit will tighten, especially in the European Union, and that overdue payments to creditors could surge. The firm noted that slowing payment practices can already be seen in some areas.

"The ups and downs of the euro zone situation and the U.S. economic policy impasse have created uncertainty that could lead to stagnant consumer and investor spending," Coface said in a release late last week. "Another source of concern is the distrust towards the banks because of their exposure to sovereign risk, which could affect access to credit."

Specifically in the United States, newly expected lower levels of growth through late 2011 and 2012 are "likely to result in an increase in bankruptcies, particularly for small- and medium-sized companies weakened by high exposure to regional banks and suffering from reduced access to credit."

Perhaps because the financial markets and mainstream media do not react to such downgrades with the same level of panic and volatility as decrees and predictions from the "big three" U.S.-based credit ratings agencies, Coface's risk updates did not inspire a vitriolic response from representatives from the nations named. The same could not be said for the firestorm left in the wake of the Moody's and, more recently, S&P's downgrades of nations. Subsequent congressional inquiries into the latter were painted by many as retribution.

Brian Shappell, NACM staff writer

NACM's Mechanic's Lien and Bond Services (MLBS): Best-in-Class Service for Today's Construction Credit Professional

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.

Don't miss Greg Powelson's half day workshop on November 10
in Birmingham, Alabama. Click here for details.

Ex-Im, Nigeria Sign Agreement for Up to $1.5 Billion in Exports

The Export-Import Bank of the U.S. (Ex-Im) signed an agreement this week with the Nigerian Ministry of Power aimed at securing up to $1.5 billion in U.S. exports. The goods and services covered under the agreement would go toward a project set to increase power output in Nigeria ten-fold by 2020.

While the $1.5 billion in security will cover a great deal of business, it could end up being the first drop in a large pond, if Ex-Im has its way.

"One-and-a-half billion dollars is just a start. We want to deploy this financing as quickly as possible to help meet President Goodluck Jonathan's goals for growing the Nigerian economy by greatly expanding the availability of power in the country. The bank's board of directors will certainly consider additional financing if needed," said Fred Hochberg, Ex-Im chairman and president. "We are also interested in financing U.S. exports in support of Nigeria's other infrastructure needs, which we understand may total over $220 billion between 2012 and 2016."

Transactions under the agreement would be approved by Ex-Im on a case-by-case basis, similar to other Ex-Im-backed initiatives. The agreement was signed by Chairman Hochberg and Nigerian Minister of Power Bart Nnaji during Hochberg's recent business development mission to the country.

As reported in the March 2011 issue of Business Credit magazine, the African continent is increasingly proving itself to be viable market, with its largest economies like Nigeria and South Africa providing exporters with a foothold from which they can expand into other nations. In fact, both Nigeria and South Africa have been identified by Ex-Im as two of the nine countries in the world offering U.S. companies the greatest opportunities for sales. The other countries are Turkey, India, Indonesia, Vietnam, Brazil, Mexico and Colombia. All have growing economies and significant infrastructure needs.

To learn more about international business and issues in exporting, visit the website of FCIB, NACM's international division.

Jacob Barron, CICP, NACM staff writer

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Chapter 9 Update: No Fury Like a Mayor and Governor Scorned

Harrisburg Mayor Linda Thompson, with backing from the state of Pennsylvania, is striking back at her own city council for its move to enter the capital city into municipal bankruptcy. Still, the mayor, as well as the council members on both sides of the issue, may lose power to make financial decisions going forward.

Last week, NACM's blog reported that Harrisburg's city council defied the wishes of the state and its own mayor by voting 4-3 to file for Chapter 9 bankruptcy. Supporters of the filing believe it gives the city leverage to renegotiate debt largely tied to a massively unsuccessful trash incinerator project, and provides fairer options to local taxpayers who didn't want to take a hit out of proportion to that of investors.

However, Thompson and the state have now filed a motion in U.S. District Court to have the bankruptcy filing voided, arguing the city council, by statute, does not have the authority to authorize a bankruptcy filing without the documented support of the city mayor, and that it acted improperly in the filing. Thompson, following a failed bid by the state to stymie the bankruptcy, had offered a financial plan to avoid such a filing that would have raised taxes and sold some city assets, namely parking structures and the aforementioned incinerator operation. Like the state's plan, the city council rejected Thompson's plan by a narrow margin.

A hearing on the Thompson and state motion is tentatively scheduled for Nov. 23. However, the state may throw a wrench into the entire matter with a new law that paves the way for the governor to declare a fiscal emergency and take over the financial decisions whenever a third-class Pennsylvania city (a category into which Harrisburg falls) fails to implement a fiscal recovery plan when facing insolvency. The governor, who signed Senate Bill 1151 Thursday will be given power to declare a fiscal emergency once a city becomes insolvent or is projected to do so within 180 days. Also, the city in question, in this case Harrisburg, will have 30 days to develop and adopt an acceptable fiscal recovery plan to avert a state takeover of financial decision-making. Without one, which is unlikely for Harrisburg, the takeover would begin immediately after the designated 30-day period. The extent to which all of this could affect the recent bankruptcy remains somewhat unknown.

"I remain a strong proponent for municipal governments tackling their own problems and coming together to develop a fiscal recovery plan when necessary," said Corbett. "But when that fails to happen, the state has to take action to ensure public safety...the state will intervene."

Brian Shappell, NACM staff writer

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



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