February 14, 2013
Gambling in the United States never seems to fall out of fashion. And, while there has been quite a boom in the Eastern U.S. for legalization of gaming operations in recent years, the surge could cause some operators to eventually go bust to the surprise of some flat-footed creditors.
Maryland is just the latest state to allow, by voter referendum, expanded gaming operations at several sites throughout the state, which will include table games as well as "slot-parlor" offerings. Ohio is a recent player in the market, too, with several operations. They join relative newcomers in recent years in states including Pennsylvania (there are at least three casinos running within the borders of Philadelphia alone), West Virginia and Delaware, not to mention the many longtime operators of Atlantic City, NJ and a couple on tribal land in Connecticut. What does that mean to suppliers of everything from gaming machines to carpeting to food services to cups for beverages that end up in these casinos? It means there is plenty of competition and real potential for market saturation, according to Patrick Spargur, ICCE, credit and collections manager with Bally Technologies, Inc.
Large appetite for gaming or not, some operators will likely face the reality that there is not enough demand for everyone to thrive or even survive without solvency issues. Spargur, who will moderate the May 22 FCIB-designed educational session "Working Capital Management and Cash Forecasting" during Credit Congress in Las Vegas, believes some companies will indeed face danger because of the high number of operators.
"There's just a lot more competition in the surrounding region, and it's major competition," Spargur said. "Analysts I follow say, in Atlantic City alone, three to five properties need to be either shut down or converted into boutique hotels. There are too many players: Ohio is pulling from Pennsylvania; Pennsylvania is pulling from Atlantic City; West Virginia is pulling from Pennsylvania."
In short, the spreads for various casino operations are going to be different from place to place and need to be closely monitored by credit departments of direct suppliers to the casinos and those upstream alike. It serves as a critical reminder to know an industry well, beyond overarching numbers for a large region.
- Brian Shappell, CBA, NACM staff writer
Industries to Watch is a new, regularly-occurring feature in NACM's blog and eNews that brings attention to the business conditions in specific areas with potential solvency issues when they arise.
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New for 2013, language and state laws have been updated throughout the entire volume including:
- Chapter on Personal Property Liens thoroughly rewritten
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- Chapters on Liens and Bonds updated
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Although this year's State of the Union on February 12 was a bit lighter on exporting than in prior years, President Barack Obama did use his annual address to promote his trade priorities, including a plan to strengthen the already deep trade ties between the United States and the European Union.
"Even as we protect our people, we should remember that today's world presents not only dangers, but opportunities. To boost American exports, support American jobs and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership," said Obama. "And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Unionâ€”because trade that is free and fair across the Atlantic supports millions of good-paying American jobs."
As such, in a joint statement yesterday, Obama, European Council President Herman Von Rompuy and European Commission President JosĂ© Manuel Barroso announced that the U.S. and the EU would each initiate the internal procedures necessary to create a transatlantic trade agreement. "The transatlantic economic relationship is already the world's largest, accounting for half of global economic output and nearly one trillion dollars in goods and services trade, and supporting millions of jobs on both sides of the Atlantic," they said. "A high-standard Transatlantic Trade and Investment Partnership would advance trade and investment liberalization and address regulatory and other non-tariff barriers."
Trade-focused lawmakers applauded the announcement but urged caution as they outlined their priorities to U.S. Trade Representative Ron Kirk. "While there is much promise in the relationship, there are remaining barriers to free and fair trade that are longstanding and difficult," said Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), chairman and ranking member, respectively, of the Senate Finance Committee whose jurisdiction includes international trade. "Broad bipartisan Congressional support for expanding trade with the EU depends, in large part, on lowering trade barriers for American agricultural products."
Baucus and Hatch also cited strong intellectual property rights protection and increased regulatory harmonization between the U.S. and the EU as two other items necessary to any negotiated agreement's success.
- Jacob Barron, CICP, NACM staff writer
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A surge in the Mexican market stock price for bankrupt glassmaker Vitro SAB and widespread rumors of a nearing settlement with U.S.-based creditors have forced the company to confirm its recent activity. The new negotiations represent a major victory for creditors, at least in the short term, but could threaten inter-border bankruptcy stability down the line.
As its stock price shot up by nearly 20% in recent days, the firm this week noted that "Vitro SAB reports that it is holding talks with creditors regarding its financial restructuring process...This disclosure has been made at the request of the Mexican Stock Exchange." Texas-based Bankruptcy Judge Harlin Hale last year denied enforcement of Vitro's Chapter 15 reorganization plan approved in the Mexican city of LeĂłn's court because he believed Vitro's plan "manifestly contrives" U.S. bankruptcy policy and the interests of American bondholders and trade creditors. He also gave credence to allegations that the subsidiaries schemed to fraudulently block U.S. collectors from collecting debts.
Bruce Nathan, Esq. of Lowenstein Sandler LLP said that, despite little in the way of facts about what has been negotiated, the bondholders almost certainly gained significant leverage when Hale failed to approve the Vitro plan. This is a victory for creditors in the short term just by getting Vitro back to the table, not to mention that Hale's decision was far from illogical based on the facts of the messy Vitro filing. However, it could also possibly open a Pandora's Box by exposing creditors to retaliation in future court proceedings.
"This could have a negative impact on cross-border bankruptcy proceedings because, if the shoe is on the other foot with a Chapter 11 when an American company has assets in Mexico, it could become the same issue," said Nathan. "How is the Mexican judge going to feel, knowing a case like Vitro was thrown out by a U.S. judge? It really might be a double-edged sword. Long term, it might not necessarily bode well for cross-border bankruptcy proceedings."
In other news, snack-lovers may not have to fret too much longer over the fate of the Twinkie. U.S. Bankruptcy Court Judge Robert Drain, at proceedings in New York, approved Hostess' request to begin selling off some of its assets, including the Twinkie and Drake's brands. Such sales could happen as early as mid-March.
The Hostess bankruptcy is perceived to have come largely from poor management as well as an inability to rework contracts with unions, which are reportedly working behind the scenes with potential buyers to get its workers jobs producing the snacks for whichever bidder wins at auction.
"I'm waiting to see if anyone actually bids. I think they will," said Nathan. "I'm interested in what role the labor people will have in it. The potential buyers rumored aren't exactly pro-union."
Meanwhile, in Chapter 9 news, albeit it massively premature, the City of Baltimore has entered the bankruptcy conversation thanks to an independent report commissioned by its mayor. A report from Public Financial Management, Inc. found that Baltimore faces major shortfalls in the next ten years that could lead to $750 million budget deficit and some $3 billion in unfunded retiree guarantees. Some media outlets, including the Associated Press, threw around phrases like "financial ruin" and argued that, short of major reforms, "Charm City" would flirt with municipal bankruptcy by early next decade. City officials countered, arguing that they are already combating fiscal issues with a balanced budget this year and the likelihood of another smaller-than-usual (approximately $30 million) budget shortfall in 2014.
- Brian Shappell, CBA, NACM staff writer
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Corporate bonds continued on their modest, but persistent, decline in quality in 2012, according to Fitch Ratings.
The share of U.S. corporate bonds downgraded by the ratings giant hit 6.2% in 2012, which was down from the 8.1% downgrade rate in 2011, but still higher than the 4.4% upgrade rate for 2012, which was down from 2011's 5.8% upgrade figure. Fitch's top tier, representing the slice of U.S. corporate bonds rated 'AAA' or 'AA,' stayed at 9% of market volume in 2012, which was little changed from 2011.
The middle tier of 'A' to 'BBB'-rated bonds also held steady according to Fitch, covering about 69% of market volume. Negative changes did occur in the agency's 'BBB' pool, which reached a new high of 32.1% in 2012. In total, the 'BBB' bonds represented $1.4 trillion in market volume in 2012, up by 44.3% from the $1 trillion worth of 'BBB'-rated market activity in 2009. The 44.3% growth rate also outpaced the regular market growth rate of 21.4% over the same period.
According to Fitch, the modest decline in the downgrade rate was "due entirely to less volatility in the financial sector." In other industries, high downgrade rates were seen in computers and electronics (21.1%), supermarkets and drugs stores (15.6%), consumer products (11.1%) and transportation (10%). In addition to having the 2012 class-leading downgrade rate, the computers and electronics sector also had the highest upgrade rate of 16.6%, a testament to the industry's volatility. Following that, the automotive sector had the second highest upgrade rate with 16%.
- Jacob Barron, CICP, NACM staff writer
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A national survey conducted by TD Bank found that chief financial officers (CFOs) are expecting both business and macroeconomic growth in 2013.
Nearly half (46%) of all finance managers polled said they were more optimistic about U.S. economic growth over the next year compared to 2012. An even greater portion of respondents (57%) predicted that their own companies' performance would improve this year, with most CFOs in the survey reporting that they've accumulated at least a modest stockpile of cash and expect revenues to increase in 2013. This being the case, 48% of survey participants expected their capital expenditures to increase over the next year.
"Business executives have grown more willing to invest, albeit cautiously, over the last year and our survey results support this trend continuing through 2013," said Greg Braca, head of corporate and specialty banking at TD. "Despite remaining policy and regulatory concerns at the macro level, CFOs seem poised to drive expansion and investment with capital accumulated since the downturn."
The lingering concerns for survey respondents were the old favorites, with 30% of participants citing political gridlock over the U.S. budget deficit and tax policy and 24% of participants citing government regulation as substantial sources of anxiety.
A whopping 71% of respondents expected sales to increase in 2013, with only 15% expecting a decline. This bears out much of what was reported in the latest edition of the National Association of Credit Management's (NACM's) Credit Managers' Index (CMI), which showed sales improving in the first month of 2013 even as other factors seemed to waver.
- Jacob Barron, CICP, NACM staff writer
Make Better Credit Decisions with Industry Credit Groups
Credit groups are an effective management tool, allowing 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 about the most recent payment practices. The purpose of exchanging information is to help group members separate fact from fiction, 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:
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- 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.
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