February 21, 2013
The top players in Washington, DC and throughout the European Union have rarely been as publicly aligned regarding major policy changes in recent years as they seem to be in reviving the Trans-Atlantic Trade and Investment Pact negotiations. The free trade agreement (FTA) seems to be drawing overwhelmingly positive feedback from media analysts and the populace on both sides of the Atlantic. However, is this all leading up to a very hard fall as lobbying, protectionism and the potential for vitriolic partisanship, especially in the United States, present obstacles to quick passage?
Perhaps no issue has gotten more play and positive attention since U.S. President Barack Obama's February 12 "State of the Union" address than the U.S.-EU pact, which would ease the few remaining trade restrictions of significance between the world's two largest economies. Barriers between the two are low already, but given the high volume of trade, removing them could yield a significant economic impact.
"This is a case of mutual need, as both the U.S. and Europe are struggling," said NACM Economist Chris Kuehl, PhD. "It makes sense to reduce the barriers to trade and growth between regions that have long histories of interaction and which have complementary economies."
That said, negotiations are almost surely going to drag out as those with a stake in the matter—organized labor, agricultural lobbies and lawmakers looking for votes in the next election—ask a thinly-veiled "what's in it for us?" They threaten the two-year timetable bandied about by leaders on both sides, as missing the target would hit at their reputations to get things done—something neither needs—and prevent the needed growth uptick the pact is designed to address.
This still fails to address the reality that Kuehl and France-based Ludovic Subran, chief economist at Euler Hermes, believe: that this or any trade pact is far from the panacea as such an agreement is often painted. In an interview for a feature on pending global FTA negotiations in the March edition of Business Credit, Subran said such pacts must be looked at as a good and important "first step," but not much more. "It still requires a lot more information-gathering and staffing and efforts to make exporting work," said Subran. "An FTA, by itself, doesn't lessen the risk of nonpayment."
- Brian Shappell, NACM staff writer
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The Supreme Court sided with the Federal Trade Commission (FTC) on Tuesday when it decided that not all actions taken by state or municipal authorities are immune from federal antitrust laws. In Federal Trade Commission v. Phoebe Putney Health System, Inc., the court ruled unanimously that an antitrust defendant cannot invoke state-action immunity once it has become a market participant and engaged in competition with private businesses.
Typically, states and municipal authorities are immune from federal antitrust laws under the state-action doctrine, originally laid out in Parker v. Brown in 1943. Under the doctrine, the federal government must respect the decision of the state or municipality even when it approves an action that would be considered anticompetitive under standards administered by the FTC or Department of Justice (DOJ). In other words, it's only anticompetitive when someone other than the state does it.
The subject of the Phoebe Putney case was a merger of the only two hospitals in Albany, GA. The FTC sued to stop the aquisition of HCA Holdings' Palmyra Medical Center by Phoebe Putney Memorial Hospital, owned by the Hospital Authority of Albany-Dougherty County. As they were operating under a grant of general corporate power from Albany-Dougherty County, Phoebe Putney claimed that such behavior was immune from federal antitrust laws, but the Supreme Court disagreed.
In her opinion for the Court, Justice Sonia Sotomayor noted that "because Georgia's grant of general corporate powers to hospital authorities does not include permission to use those powers anticompetitively, we hold that the clear-articulation test is not satisfied and state-action immunity does not apply."
Several hospitals have recently aimed to consolidate arguing that doing so expands their range of services and increases efficiency. However, mergers also give the hospitals greater leverage over suppliers and insurance companies, leading to price increases for consumers and businesses.
The National Federation of Independent Business (NFIB) cheered the case for greatly tightening the application of state-action immunity and leveling the playing field for government entities and businesses. "At NFIB we often hear from small business owners who are frustrated by how taxpayer-funded government actors or quasi-governmental entities are held to different standards even though they are competing directly with small businesses," said Karen Harned, executive director of NFIB's Small Business Legal Center. "The Supreme Court's decision today shows that government entities should be held to the same rules and criteria as a private business when they are competing in the market."
- Jacob Barron, CICP, NACM staff writer
FCIB Annual International Credit & Risk Management Summit in Prague
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May 12-14, 2013
The Corinthia Hotel Prague, Prague, Czech Republic
Join us on May 12-14 at FCIB's Annual International Credit & Risk Management Summit to discover insight from distinguished speakers, participate in thought-provoking sessions and network with lead experts and your peers in an educational environment.
• Basel III and the Impact on Working Capital Requirements, Letters of Credit and Guarantees
• Different Security Methods across Europe and Best Practices
• Risk Awareness in Today's Global Trading Conditions
• Early Warning Signals: Keeping a Pulse on Your Counterparties
• The Effects of Global Instability on the Treasury Department
We look forward to seeing you in Prague!
Despite hope of improvement after the heated election and avoidance of the fiscal cliff (albeit temporarily), the credit quality of U.S. small businesses decreased in a troubling fashion in 2012's final quarter. Analysts in a new study report that the bad news can't be hung on the easy scapegoat, Hurricane Sandy, either.
The Experian/Moody's Analytics Small Business Credit Index noted that improvement in small business' aggregate credit quality is expected to rise by late this year or early 2014. However, that is a part of the scant good news in the index, which declined 6.8 points to land at a historically low level of 97.3. The authors noted that reduced personal income growth drove a domino effect of lower retail sales, more cautious interest in investment on the part of the businesses and, in an increasing number of cases, borrowing to cover payroll expenses. It all adds up to smaller outfits having problems paying down credit obligations. The study noted:
"Balances less than 60 days overdue rose nearly 20% on the quarter...this was enough to push the share of delinquent dollars higher, to 9.7% from 9.4% in the third quarter. Discouraging is the fact that less than 8% of the rise in balances less than 60 days overdue can be attributed to firms with severely past-due accounts paying down their obligations; thereby pulling them into less severe buckets. Nearly all of the climb is the result of firms that previously had been current on their payments falling behind."
The study also dispelled the notion that a driver of the poor results could be tied to the recent storm, noting Sandy had very little real impact on statistics for the quarter. Granted, the effects could become more evident and troubling in early- and mid-2013, Experian/Moody's predicted.
Still, Mark Zandi, chief economist at Moody's Analytics, noted that it was encouraging to find credit growing again overall, a first since the recession, and that more free-flowing credit "should support more investment and hiring and reinforce the broader economic recovery."
- Brian Shappell, CBA, NACM staff writer
Manual of Credit and Commercial Laws, Volume III: Construction Issues—Update Available Now!
New for 2013, language and state laws have been updated throughout the entire volume including:
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Watch for future updates of volumes I, II and IV.
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Late last year, the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) issued comprehensive guidance on how companies can avoid running afoul of the Foreign Corrupt Practices Act (FCPA). After four months, a coalition of national and international business advocacy groups, most notably the U.S. Chamber of Commerce and its Institute for Legal Reform (ILR), have issued their response, outlining in a letter all the things the DOJ and SEC guidance does, and doesn't do.
Overall, the ILR and its compatriots were underwhelmed by the resource guide, thanking the DOJ and SEC for their efforts while demanding more from the agencies and a full-on legislative solution to some noteworthy objections.
For example, the DOJ and SEC guidance includes a lengthy discussion of what enforcement agencies consider to be the key elements or characteristics of a "robust compliance program," one required of companies by the FCPA's anti-bribery positions. It also added that such a program "be tailored to an organization's specific needs, risks and challenges" based upon a "company's own assessment."
However, for the more than 30 groups that signed the letter, these concessions don't go far enough to protect companies from liabilities should a rogue employee manage to circumvent a world-class compliance program. "Even if a company had in place a state-of-the-art compliance program that was well-designed to prevent FCPA violations and that was aggressively enforced, it remains exposed to liability if the program is circumvented by even one employee," said the letter. "The Resource Guide offers little assurance that the company's pre-existing, strong compliance program will be given sufficient weight in the charging decisions of the Department and the SEC."
The coalition went on to call for a legislative fix to this issue, which could be the only way for groups like the U.S. Chamber to get their way, since DOJ officials have repeatedly rejected such a change to their enforcement strategy.
The guidance itself also contains a number of behaviors and case studies designed to give users an idea of what behaviors trigger administrative scrutiny. Additionally, the guide offered six examples of actual matters in which the agencies declined to pursue an FCPA prosecution or enforcement action, an act of transparency unique to FCPA enforcement that ruffled some feathers in the DOJ and SEC.
However, the Chamber and its colleagues applauded the disclosures in their letter, noting that FCPA's lack of a significant body of case law makes the examples necessary. "We hope that the agencies...will continue to provide information regarding their declination decisions, and we urge the agencies to consider making this disclosure a routine practice," they said.
A full copy of the letter can be found here.
- Jacob Barron, CICP, NACM staff writer
Financial Statement Analysis 2 - Updated, Dynamic, Essential!
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Just a week after eNews' "Industries to Watch" highlighted the potential problems that could be caused by a glut of gaming operations in the Eastern United States, it appears one of the newest players in the industry will be unable to avoid filing for bankruptcy.
Reports have spread like wildfire that Revel AC, Inc., which opened its Revel property less than a year ago with a bang amid opulent amenities and a media-snatching performance with Beyoncé, sought high-powered attorneys specializing in bankruptcy filings to look at its finances. Such finances already include $1.5 billion of debt at a time when economic growth seems to be easing, in addition to more competitors in neighboring states coming online with legalized gaming operations and the budgets of potential local customers still impacted by the lingering effects of Hurricane Sandy.
It appears overinvestment in gaming is now becoming a palpable problem in the Eastern U.S. On top of the expansion of new operations in Maryland, gaming also is legal in Ohio, West Virginia, Pennsylvania, Delaware and Connecticut. It's spreading the potential customer base thin, especially for former gaming hub Atlantic City. The city is out of the way during the portion of the year when the weather renders its location on the ocean somewhat undesirable and other area attractions that line the famous Atlantic City Boardwalk, as well as the nearby marina area, provide competition.
Patrick Spargur, ICCE, credit and collections manager with Bally Technologies, Inc. speculated there could be two or three filings on the part of Atlantic City-based operations alone this year. Creditors selling directly to or downstream from Eastern-based gaming operations in any significant capacity need to be aware of the potential trend.
- Brian Shappell, CBA, NACM staff writer
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Nebraska's largest electric utility announced this week that last month's revision to the proposed route for the Keystone XL oil pipeline would delay work on transmission lines for the project. This means more progress on the pipeline will be delayed until 2015 at least, even if it receives presidential approval.
TransCanada, the company actually building the pipeline, had originally set a deadline for construction of transmission lines to be completed by the end of 2014. But Nebraska Public Power District (NPPD) officials admitted that the revised route, approved by Nebraska Governor Dave Heineman (D) in January, would delay the project. NPPD's chief operating officer described the original deadline as "wishful thinking."
The pipeline's original route was rejected by President Barack Obama in early 2012, but revisions have continued since then to make the pipeline less of an environmental eyesore. Specifically, the U.S. State Department, which has jurisdiction over the project because it crosses the U.S.-Canada border, sought proposals to reroute the pipeline around Nebraska's environmentally-sensitive Sand Hills region.
TransCanada made the changes and received Heineman's approval, but the revision also complicated the other infrastructure changes that were necessary for the pipeline's construction.
The project has been a lightning rod for controversy, with thousands of protesters descending on Washington earlier this month to protest the pipeline. Their objections are economic and environmental, with opponents arguing that the project won't create as many jobs as TransCanada claims, and that the tar sands oil the pipeline will transport from Alberta, Canada to the U.S. Gulf Coast will only further increase America's dependency on fossil fuels.
- Jacob Barron, CICP, NACM staff writer
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