eNews Jul 12, 2012

July 12, 2012

News Briefs

  1. California, Pennsylvania Communities Keep Municipal Bankruptcy in the Headlines
  2. Pressure on Congress Ramps Up after Russia Moves toward Full WTO Membership
  3. Chinese Demand for Products Off, Bad for U.S. Manufacturing Prospects
  4. Commercial Bankruptcy Filings Down 22% in First Half of 2012
  5. One Solar's Loss = Two Solars' Gains in Funding
  6. Latest U.S. WTO Case against China Challenges Duties on American Cars


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California, Pennsylvania Communities Keep Municipal Bankruptcy in the Headlines

As predicted, the Stockton, CA Chapter 9 filing was not alone, as now two more California communities have decided to take the path of municipal bankruptcy. Meanwhile, across the country in Pennsylvania, another city could be eyeing the possibility as the state capital continues to see its attempts to file swatted away.

Lawmakers in San Bernadino, CA voted Tuesday to pursue a municipal bankruptcy filing, as Stockton did late last month. The vote comes on the heels of Mammoth Lakes' Chapter 9 filing in California just before the Independence Day holiday over problems stemming from a large real-estate-related court settlement and costs/entitlements that have grown out of control for the small resort community. Though emerging as a problem throughout the country, California has particularly struggled with shrinking tax bases because of the real estate bust as well as, and perhaps more significantly, public worker contracts and expensive retiree entitlements for which municipalities are on the hook. They're among the reasons why California implemented a state law requiring a 90-day mediation period designed to bring municipalities and their creditors to the negotiating table before struggling cities can file. While it has likely slowed the pace of filings, votes and discussions to pursue the bankruptcy option have continued.

"There will be a series of filings in the next six months to a year, there's no doubt about it," Lowenstein Sandler PC's Bruce Nathan, Esq. told eNews in an interview last week. Nathan is among experts who have been predicting a surge in Chapter 9 filings since even before Harrisburg, PA; Jefferson County, AL; and Central Falls, RI grabbed headlines for attempts to file nearly a year ago.

In regards to Harrisburg, where a temporary Pennsylvania state law was seemingly created to specifically to block its municipal bankruptcy filing last year, the law banning such filings has been extended into late November. Harrisburg officials' attempts to file have been rejected by judges in Pennsylvania courts multiple times, largely on the grounds that the state mandate prohibits the practice, and is, in fact, unconstitutional. The city continues to struggle because of massive debt tied to a failed trash incinerator retrofit project that it was unable to substantially renegotiate with creditors.

Meanwhile, in Scranton, PA, talk of potential bankruptcy as a debt solution is picking up steam. Facing well-publicized financial problems, lawmakers there ham-handedly moved to cut many public employees' pay to minimum wage. The decision caused a backlash, and a court battle is already brewing as the city tries to make cuts to avoid insolvency.

- Brian Shappell, CBA, NACM staff writer

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Pressure on Congress Ramps Up after Russia Moves toward Full WTO Membership

Russia took a pivotal step toward full membership in the World Trade Organization (WTO) this week as the lower chamber of its parliament ratified the country's accession package. In addition to edging Russia closer to becoming the WTO's 156th member, the move also ramps up pressure on the U.S. Congress to act on establishing permanent normal trade relations (PNTR) with Russia before it's too late.

Legislation that would establish PNTR with Russia has come up for consideration by both chambers of Congress. Specifically, the bill would repeal the Jackson-Vanik amendment, a Cold War regulation that made U.S. preferential tariff rates for Russian products conditional on the country allowing Jews and other minorities to emigrate freely. While Jackson-Vanik is annually suspended as a matter of course under WTO rules, if Russia becomes a member and Jackson-Vanik is still on the books, Russia can deny the U.S. access to the markets it's opening as part of its WTO accession agreement. This would allow other markets to enter Russia first and lay the groundwork for future trade prominence, an outcome U.S. lawmakers and Administration officials are eager to avoid.

"Today's vote by the Russian Duma [the lower body of Russia's parliament] underscores the importance of early action by Congress to pass legislation extending PNTR to Russia," said Senate Finance Committee Chairman Max Baucus (D-MT) following the vote. The Finance Committee has jurisdiction over matters of U.S. trade policy. "Without PNTR, America's ranchers, farmers, workers and businesses will lose out to their foreign competition. I intend to mark up PNTR legislation as quickly as possible."

Efforts to approve PNTR must walk a tightrope between not offending Russia and satisfying U.S. lawmakers wary of Russia's human rights record. Earlier, Baucus signaled his intention to include portions of the Magnitsky Act in his version of a PNTR bill when the Finance Committee marks up the legislation. Named for anti-corruption lawyer Sergei Magnitsky, who died in 2009 under mysterious circumstances after serving a year in a Russian prison, the amendment would deny visas and freeze the assets of parties suspected of involvement in Magnitsky's death, as well as those of other Russian human rights abusers. However, at the end of last month, when the Senate Foreign Relations Committee approved the Magnitsky Act on its own, Russia was reportedly "outraged," meaning struggles remain in the quest to find a solution that satisfies lawmakers while allowing Russia to save face.

Russia has until July 23 to notify the WTO that it has ratified and accepted the terms for its membership, and then 30 days after that, will officially join the organization. The legislation approving the accession agreement now moves to the upper chamber of Russia's parliament, the Federation Council, for adoption, and then on to the president for signature.

- Jacob Barron, CICP, NACM staff writer

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 Chinese Demand for Products Off, Bad for U.S. Manufacturing Prospects

New statistics out of China reporting less than was forecast for product and service purchasing, especially of U.S. made goods, should come as no shock. With domestic manufacturing activity now much more dependent on China because of debt struggles in the European Union─as noted repeatedly by NACM Economist Chris Kuehl, PhD─and the latest U.S. statistics showing a surprise slide earlier this month, it seemed the two were almost certainly intertwined.

China's import activity for June rose 6.3%. And, while a hearty performance for most nations, it was expected to be slightly more than double that. The countries hit most by the slower pace of growth in the Asian powerhouse appear to be Australia and, to a greater extent, the United States. Meanwhile, in what is sure to tweak the nerve of already tense trade relations of late, Chinese exports to the U.S. surged yet again. Domestic purchasing of Chinese product has now overtaken the EU as tops in demand. China's overall export growth reported in June tracked at 11.3%, more than a full percentage point above forecast, and brings its overall trade surplus to $31.7 billion.

Meanwhile, Acting U.S. Commerce Secretary Rebecca Blank tried to spin the positives of recent domestic trade data. Blank noted the May increase in services exporting, up 0.2% to $183.1 billion, while focusing on successes in areas such as automotive and food/feeds/beverages.

"U.S. exports posted their second-highest level on record in May despite some tough economic conditions abroad, confirming the progress we are making on the path to achieving the president's goal of doubling exports by the end of 2014," Blank said. Still, the rose-colored outlook can only go so far as U.S. companies continue to worry about lackluster demand from a sector counted upon to carry economic growth. And, as Kuehl has noted referencing the EU mess, U.S. companies are largely dependent on China to "get its mojo back," in a spending sense, to accelerate or even continue at a meek-to-modest pace.

- Brian Shappell, CBA, NACM staff writer

See more on strained U.S.-China trade relations in story #6 below.

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Commercial Bankruptcy Filings Down 22% in First Half of 2012

Commercial bankruptcy filings during the first six months of 2012 fell by 22% compared to the same period in 2011.

The decline was part of a Bankruptcy Code-wide drop in total filings in the first half of the year. Total bankruptcy filings topped 632,130 nationwide during the first six months of 2012, representing a 14% decrease from the 731,500 total filings during the same period a year ago, according to data provided by Epiq Systems, Inc. and reported by the American Bankruptcy Institute (ABI). "Additionally, the 601,184 total noncommercial filings for the first half of 2012 represented a 13% drop from the noncommercial total of 691,902 for the first half of 2011."

Chapter 11 filings also fell during the first half of 2012, from 6,070 last year to 5,313 this year, marking a 12% decrease.

"We are on pace for perhaps the lowest total new bankruptcies since before the financial crisis in 2008," said ABI Executive Director Samuel Gerdano. "With sustained low interest rates and weak consumer spending, we expect bankruptcies to stay at relatively low levels through the end of 2012."

Last month's totals alone showed severe declines in nearly every corner of the bankruptcy world. Total filings were down 18% compared to the total in June 2011, while total noncommercial filings for June represented a 17% decrease from the same period last year. Commercial and Chapter 11 filings registered the sharpest declines, with June 2012's 4,620 commercial filings representing a 29% decrease from the 6,356 filings during June 2011, and Chapter 11 filings falling 28%, from 1,000 in June 2011 to 718 in June 2012.

Per capita filing rates for the first six calendar months of 2012 decreased to 4.08 total filings per 1,000 population, down from 4.13 for the first five months of the year. States with the highest per capita filing rate through the first half of the year were Nevada (7.06), Tennessee (6.99), Georgia (6.49), Utah (6.12) and Alabama (5.88).

- Jacob Barron, CICP, NACM staff writer

While commercial bankruptcy numbers are in decline, credit professionals and their companies continue to face many other legal issues that stand between them and prompt payment from their customers. To learn more about what protections the law affords trade creditors, be sure to attend NACM's Legal Workshop, hosted at NACM-National in Columbia, MD from August 23-24. Find out more here.

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One Solar's Loss = Two Solars' Gains in Funding

Solyndra, the California solar firm with ties to the Obama Administration that is under investigation for fraud and going through a significant bankruptcy restructuring, won't be getting any more loan guarantees from the Energy Department. However, in a positive note for the solar energy products industry and creditors tied to them, two other companies will be getting that money, even if a group of Republican lawmakers are trying to turn off the funding spigot in the near future.

The Energy Department announced that SoloPower Inc. and 1366 Technologies Inc. will be getting millions of dollars in funding that had been earmarked for Solyndra before it spiraled into insolvency. It is a sign that the Energy Department, even with notable problems in the industry and cries of wasted taxpayer dollars and inefficiencies, remains bullish on the solar program despite the downturn in growth. To wit, the number of solar products-related manufacturers in the United States that have filed for some form of bankruptcy in the last year has hit double-digits.

Credit Management Association's Mike Joncich made this forecast more than a year ago. Z-Score creator and Credit Congress speaker Ed Altman, PhD from New York University also noted the same trend this spring. Joncich said that credit managers needed to make themselves aware of the deep troubles in the industry. "There was overinvestment [during the boom], and a number of companies are going to find out that they didn't have the right ideas or right business models to survive. And that's without the type of mismanagement, accidental or fraud-based, that doomed Solyndra, a firm visited by President Barack Obama in 2010 and one that held millions in loan guarantees from the federal government at the time of its collapse. It remains a source of embarrassment for the administration, largely because it has become a tangential campaign issue for GOP nominee Mitt Romney."

Seizing upon this, a group of House Republicans has been working up a bill to stop funding to any solar project or effort by the Energy Department that wasn't approved by the end of last year. The reported working title of the Congressional draft bill, cheekily, is the "No More Solyndras Act."

- Brian Shappell, CBA, NACM staff writer

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Latest U.S. WTO Case against China Challenges Duties on American Cars

Judging by the sheer quantity of World Trade Organization (WTO) cases brought against the country by the U.S., China appears to be in no hurry to fix its image as a trade rule scofflaw.

The latest in a series of WTO cases, brought by the Obama Administration last Thursday, seeks dispute settlement consultations with China due to the country's imposition of antidumping and countervailing duties on more than $3 billion in exports of American-made automobiles.

"As we have made clear, the Obama Administration will continue to fight to ensure that China does not misuse its trade laws and violate its international trade commitments to block exports of American-made products," said U.S. Trade Representative Ron Kirk. "American auto workers and manufacturers deserve a level playing field and we are taking every step necessary to stand up for them. This is the third time that the Obama Administration has challenged China's misuse of trade remedies."

For its part, the Obama Administration has continued to hold China accountable to its commitments as a WTO member. In two prior cases, the U.S. challenged duties that China imposed to restrict imports of certain steel products and chicken products from the U.S. Several other actions have been brought against China's export restraints on several industrial raw materials, China's restrictions on electronic payment services and subsidies to China's wind power equipment sector.

"In each of these matters, the key principle at stake is that China must play by the rules to which it agreed when it joined the WTO," said Kirk's office in a statement. "Those commitments include maintaining open markets on a non-discriminatory basis, and following internationally-agreed procedures in a transparent way."

The consultations requested last week represent the first step in a WTO dispute. If, after 60 days, the matter remains unresolved, then complainants may request the establishment of a WTO dispute settlement panel.

- Jacob Barron, CICP, NACM staff writer


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

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