February 7, 2013
January's Credit Managers' Index (CMI), issued by the National Association of Credit Management (NACM), marked the indicator's ten-year anniversary, but unfortunately there wasn't too much to celebrate. Last month the CMI dipped slightly, from 54.9 to 54.6, painting a picture of an economy in transition.
To find the kind of variety found in the most recent CMI report, one would have to travel all the way back to 2008, in the months that preceded the slide into the recession. For every sign that things were deteriorating at that time, there was a part of the index that looked solid and unaffected by the impending crisis. Now, however, that transition is showing again, but seems to point in the opposite direction: for every factor suggesting that the economy is still in the doldrums, there are one or two other factors that point to better days ahead.
For example, while sales improved from 56.7 to 58.6 in this month's report, new credit applications declined from 57.7 to 57.1, signaling potential trouble ahead. "The number for new credit applications is important in that it tends to anticipate the gains some of the other factors will have later," said NACM Economist Chris Kuehl, PhD. "If there is not much in the way of new credit activity, it is a signal that fewer companies are in expansion mode."
In the unfavorable factors, rejections of credit applications improved from 51.5 to 52.8, reinforcing the notion that there are still creditworthy businesses that are able to grow in the current climate. On the other hand, accounts placed for collection fell from 52.1 to 50.4, indicating that "companies are getting into financial trouble again due to the slower-than-expected fourth quarter," said Kuehl.
Since the release of the first report in January 2003, the CMI has proven itself to be a remarkably accurate forecasting tool relied upon by economists, policymakers and financial professionals. The complete CMI report for January 2013 contains more commentary, complete with tables and graphs and individual data for the manufacturing and services sectors. CMI archives may also be viewed on NACM's website.
Manual of Credit and Commercial Laws, Volume III: Construction Issuesâ€”Update Available Now!
New for 2013, language and state laws have been updated throughout the entire volume including:
- Chapter on Personal Property Liens thoroughly rewritten
- Chapter on Trust Funds updated
- Chapters on Liens and Bonds updated
Entire volume updated to reference liens, bonds and trust funds applicable to the 21st century.
NACM's Manual of Credit and Commercial Laws continues to provide essential information for credit professionals, but now in a highly flexible and more affordable formatâ€”four volumes that may be purchased separately or as a comprehensive set.
Watch for future updates of volumes I, II and IV.
Click here to get your copy of volume III and for more information about Manual updates and the wide array of resources available to today's credit professionals.
A bankruptcy case out of Montana could have shocking results for utility companies, pun fully intended.
The United States Bankruptcy Court for the District of Montana recently ruled that electricity is a good, and granted a power provider rights under Section 503(b)(9) of the Bankruptcy Code and an administrative priority claim for the electric power purchased and received from the seller by the debtor within 20 days of their bankruptcy.
Section 503(b)(9) was added to the Bankruptcy Code in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). It provides goods sellers with an administrative priority claim over any goods they provided to the debtor within 20 days of the debtor's bankruptcy filing. In the Chapter 11 case, In re Southern Montana Electric Generation and Transmission Cooperative, Inc., the debtor, Southern Montana Electric, had purchased and received nearly $2.5 million worth of electric power from the creditor, PPL EnergyPlus LLC, within the 20 days preceding their filing. PPL argued that electricity was a good, and that they were therefore entitled to Section 503(b)(9)'s 20-day priority claim. The court agreed, but issued a narrow ruling that made note of the fact that the debtor was a wholesaler, and not the end user of the power it had purchased from PPL.
"The court's decision in the Southern Montana Electric case continues the trend of court holdings that electricity is a good, and not a service, and therefore is eligible for Section 503(b)(9) priority status," said Bruce Nathan, Esq. of Lowenstein Sandler LLP. "However, the Southern Montana Electric decision is not necessarily great news for utilities as it is limited to cases where the debtor is not the end user of goods."
Additionally, not all courts have agreed with the Montana court's ruling, meaning creditors providing electricity should tread carefully. "The courts are actually divided over whether electricity is a good, subject to Section 503(b)(9) priority status, or a service that is not granted priority status," said Nathan. "Bottom line: there will be plenty more litigation on this jolting issue."
Read more about the Montana case in the forthcoming April edition of Business Credit.
- Jacob Barron, CICP, NACM staff writer
Expanding Credit Availability through Supply Chain Financeâ€”FCIB Executive Development Webinar
As credit becomes increasingly more difficult for non-investment grade corporates, Supply Chain Finance (SCF)â€”a form of post-shipment finance, can potentially help finance your supply base. SCF programs have grown aggressively in the last few seasons, but the full scope and usefulness is often overlooked.
Join David Gustin, President of Global Business Intelligence, on Wednesday, Feb. 13, 2013 at 11am EST for a 1-hr webinar as he discusses:
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â€˘ Examples and case study of large buyer-led SCF programs
â€˘ Funding models and best practices when addressing internal organizational issues
â€˘ Ways to improve the cycle time for SCF
â€˘ Key barriers to supplier adoption and how to address them
For more information or to register for the webinar, click here.
The two sides locked in contract talks affecting activity at more than a dozen Eastern U.S. ports announced February 1 that they had come to a tentative agreement and face only technicalities in finalizing a deal.
During a recent extension period to the existing contract under the direction of Federal Mediation and Conciliation Service Director George Cohen, the International Longshoremen's Association and the U.S. Maritime Alliance Ltd. concurred on the major points of a new collective bargaining agreement. Granted, local agreements still need to be worked out and ratification is still necessary, but the greater negotiation has become a done deal. Still, scant details are being released by either organization.
"We have come away from these Master Contract negotiations with landmark agreements on automation, protection of chassis work and powerful jurisdiction language," ILA President Harold Daggett said.
The contract between the two organizations was set to expire in late December, but the two sides agreed to extend it. The deal came as a relief to companies involved in trade, especially after the last port-involved contract dispute in early December, which also involved the Longshoremen, but in the Los Angeles/Long Beach area of California where a majority of the largest U.S. port's capabilities were closed for just over a week. Some estimates noted that upwards of $1 billion in goods per day were blocked during the dispute.
Similar daily losses were forecast in this instance, and a lockout or strike would have affected the following ports: Boston, New York/New Jersey, Delaware River, Baltimore, Hampton Roads, Wilmington, Charleston, Savannah, Jacksonville, Port Everglades, Miami, Tampa, Mobile, New Orleans and Houston.
- Brian Shappell, CBA, NACM staff writer
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Concerns over Germany's slowing economic growth last year and spillover from other European nations' debt problems seem to be easing.
The Economy Ministry of Germany noted this week that factory orders increased by nearly a full percentage point in December, after a near 2% fall the previous month. Some analysts optimistically believe it could be an early sign of a turnaround economically for Europe, especially since orders of German products dropped domestically, but rose significantly outside its borders more than enough to yield a net gain. While it doesn't erase concerns about many of the high-debt nations, it shows strength in German production at least. Thomas Voller, a Germany-based attorney specializing in business and collection law, says one rock to rely on, export-wise, comes from the nation's automotive production industry.
"We have a very strong car industry with brands like Porsche, Mercedes, Audi and BMW, which we still sell all over the world," said Voller, a 2012 Credit Congress speaker who will appear at the 2013 event in Las Vegas as an exhibitor with EuroCollectNet, an association of European business and debt-collection lawyers. "So there is still growth coming from the industry, even if consumer demand for new cars is declining in Germany. There is still sufficient demand by Russians, Nigerians or Chinese who want to travel in an S-class. The strength of German engineering still helps the export."
However, the situation in other EU nations is different, and there is little ability to lean on auto exports to help drive manufacturing, as Germany and the United States have done throughout economically dull times. "The French car industry is poor, and England sold off its production more or less, which is also not very helpful for the growth of the country," said Voller. "Other European countries continue to suffer horribly."
Meanwhile, Germany's unemployment rate remains far lower than struggling EU economies like Spain and Greece, where statistics have regularly exceeded 20%. The nation also seems to be preparing not just for the next expansion period, but the eventual, cyclical fall that will almost surely follow. Germany's Parliament is reviewing legislation that would force greater transparency and attach penalties including prison sentences for bankers engaging in egregiously risky behavior. Because of the reasons behind the global downturn late last decade, reining in risky banking behaviour is considered necessary to avoid repeating the mistakes of the past.
- Brian Shappell, CBA, NACM staff writer
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The U.S. Small Business Administration (SBA) more than tripled the eligible contract amount the agency will guarantee on surety bonds for both public and private contracts this week. As a result of provisions tucked into the National Defense Authorization Act (NDAA) enacted earlier this year, the ceiling on the SBA's Surety Bond Guarantee (SBG) program will jump from $2 million to $6.5 million.
The SBG works by providing an SBA guarantee to a participating surety company of between 70% and 90% of the bond amount if a contractor defaults or fails to perform. A surety bond is often used as a guarantee from the surety company to a project's owner that a certain contractor, which in this instance would be a small business, will perform their duties under a contract. An increased guarantee threshold means that surety companies will have an easier time bonding small business contractors that might not have been able to land large contracts without the added security of a surety.
"These new contract ceilings are one more way we can help small businesses, particularly in the construction and service sectors, compete for and win critical contracting opportunities that help them grow their businesses and create jobs," said SBA Administrator Karen Mills. "Additionally, these changes, which are enthusiastically supported across the surety industry and small business community, will help spur economic growth and recovery in areas that have been hard hit by disasters, bringing jobs and economic activity to regions at a time when it is needed most."
The changes also allow SBA to guarantee bonds for government contracts valued at up to $10 million if a contracting officer of a federal agency certifies that the guarantee is necessary for the small business to obtain bonding, and that it is in the government's best interests.
- Jacob Barron, CICP, NACM staff writer
CBF Designation Requirement Changes
The NACM Education Department has made a change to the Credit Business Fellow (CBF) designation requirements. In an effort to address the changing needs of today's credit professionals, the Financial Statements: Interpretation and CreditRisk Assessment course has been eliminated from the CBF designation requirements. Only two courses are now required to qualify for the CBF exam: Business Law and Credit Law.
Please contact the Education Department at 410-740-5560 or email@example.com with any questions about pursuing your professional designation.
The U.S. government confirmed what began as speculation from media sources and eventually the defendant itself, on February 4, by filing a lawsuit against one of the "big three" credit ratings agencies. Just weeks after the European Union voted on measures essentially designed to censor overly-negative analysis, warranted or not, by the agencies, the U.S. federal government is taking aim, but at just one of them.
Coincidentally, the target is the only one of the three agencies to have downgraded the United States' prized "AAA" credit rating. Standard & Poor's, and later the federal government, each confirmed Monday that the U.S. Department of Justice filed suit against the firm in civil court. S&P is being targeted for poor ratings/analytical performance, like others, in the run-up to the 2007 housing collapse that played a role in the eventual downturn, both domestically and internationally. S&P was also accused by some experts of having acted fraudulently because of commercial incentives and an interest in padding the ratings in a positive way because of some products and services it either sold directly or from which it benefitted.
S&P vehemently denied wrongdoing in a statement issued Monday and noted the "failure of virtually everyone" in predicting the full magnitude of the eventual housing downturn. It is worth noting that in August 2011, S&P downgraded the American sovereign credit rating for what it described as unease with a political "brinkmanship" that shook its confidence in the nation's ability to deal with its large debt in an efficient manner. It also characterized policymaking among current lawmakers as "less stable, less effective and less predictable" than in the past, which clearly did not sit well at the time or since with members of the U.S. Congress.
It's the latest shot against S&P from sovereignties unhappy with its ratings. The previous one, however, included Moody's Investment Services and Fitch Ratings as well. EU leaders voted to approve legislation last month that restricts the timetable in which any of the three agencies could release news of sovereign credit ratings related to any member nation in Europe. The regulations would also empower investors to take legal action against the agencies if financial losses could be tied back to vague measures of "gross negligence" or malpractice on the agencies' parts. Statements all but confirmed that the EU leadership was collectively angry at the ratings agencies for lowering ratings and warning those with massive debt problems, and wanted to "reduce the reliance," if not the importance, of the agencies on the global stage.
- Brian Shappell, CBA, NACM staff writer
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