March 14, 2013
FCIB's New York International Roundtable, held at the offices of Lowenstein Sandler, LLP on March 13, offered attendees an array of unique and nontraditional solutions to their financing needs, pushing creditors to think outside the box when it comes to mitigating their company's risk.
Panelist John Barone, executive director at JPMorgan Chase, noted that credit professionals often fail to see the big picture in terms of how receivables are securitized and financed, cutting themselves off to a number of financing options. He made the point that creditors and their companies should look to areas where investors want to put their money, and investors are currently looking to invest in so-called high-yield markets. "When we discuss high-yield, we mean any company that is rated BBB or less," said Barone. "If you were to look at a group of European high-yield names and you also look at the default rate and how those names as a portfolio have traded, the spread was astronomical."
Ultimately, the idea is that the greater the risk, the greater the reward, a fact that means greater profits for investors and, thus, greater access to unique financing solutions for companies looking to finance sales to this area. "The market for high-yield risk in Europe is growing," said Barone. "Investors are looking to put their capital somewhere, and they're looking for something where they can also get a yield on their capital." Europe is one place where creditors can hope to increase sales while hedging their risks because investors are more interested in taking the risk of securitizing such transactions with puts and other financing options.
One unique solution that might be unknown to U.S. companies is forfaiting, specifically, a promise from a forfaiter to buy a company's receivable at some point in the future. The process is much more commonly used in Europe, and panelist Gregory Bernardi, president of London Forfaiting Americas, Inc., joked about how unknown it is on this side of the Atlantic. "I've been selling forfaiting in the U.S. for 19 years," he said. "No one knows what it is."
Forfaiting is both a cash flow and risk mitigation tool, and allows companies to get a receivable off of their books in exchange for cash while offering their customers better financing than they would be able to otherwise. In one example, Bernardi noted that if a company was selling to another company in a less-than-sturdy market, they could increase their sale price to the buyer, but extend the financing period, a forfaiter would then promise to buy that receivable from the seller, to the seller's profit. "What we're asking you as companies to do is completely against the culture," he said. "Raise your price, show them the subsidized financing, but at the end of the day it's going to cost them the same amount. They want the better quality product, they just need to be able to pay for it."
There are several other things to consider, but nonetheless, forfaiting is a rarely-used tool that allows creditors to make sales in a way they wouldn't normally, all without having to take a huge risk.
- Jacob Barron, CICP, NACM staff writer
More about this FCIB New York Roundtable will appear in the May issue of Business Credit.
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Where: NACM's 117th Credit Congress & Exposition
As predicted in a 2011 Business Credit article, the United States' solar energy industry has taken its share of lumps over the last two years, but there are still those purporting the massive potential that solar holds. Whether or not the potential exists, there are real and continuing risks for everyone involved in the industry, and the government budget fight and "sequester" only adds a whole new dimension to potential problems, especially for survivors of the first wave of domestic solar-related bankruptcies.
U.S. product manufacturers contended what they saw as unfair assistance to competing solar manufacturing sectors in Asia by their governments, especially that of China. The U.S. placed tariffs on Chinese imports, but the measures were seen as somewhat weak, and there is evidence that some Chinese firms are simply offshoring operations to areas like Singapore where such tariffs aren't in play. In addition, the glut of U.S. producers left over from the cheap lending days of the financial boom of the late-2000s caused an industry saturation that became a real problem when demand fell during lower growth years. The two issues led to several high-profile bankruptcy filings headlined by that of Solyndra, which had ties to key Obama Administration fundraisers and was investigated for widespread fraud and for reaping huge amounts in government grants.
Michael Joncich, manager of the business insolvency department for NACM affiliate Credit Management Association, was among those who predicted the problems in 2011. He now speculates that reduced federal subsidies, grants and other assistance aren't likely to help current matters. "Government can make or break an industry. I don't really know if the shakeout is done yet," he said.
Joncich noted that a colleague in the liquidation business recently learned everything he could about green businesses, thinking it was a bubble ready to pop, especially once it became apparent that the government was retracting its "generous funding" of those industries, including solar. "The observation is that they can't seem to fund themselves," he said. "When the government pulls back because of federal budget cutbacks, many can't survive it."
It doesn't mean all solar manufacturers are doomed, but there are enough red flags that virtually all creditors dealing with customers related to the solar industry should be paying close attention to them, their accounts and their terms.
- Brian Shappell, CBA, NACM staff writer
FCIB Annual International Credit & Risk Management Summit in Prague
Register now for the Early Bird rate!
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 leading 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
The Early Bird rate deadline has been extended! Click here to register and save!
To view the entire program, click here.
We look forward to seeing you in Prague!
The annual caseload in bankruptcy courts throughout the United States in 2012 continued the trend of dropping sharply, according to a new Administrative Office of the U.S. Courts (AO) report tracking data for the fiscal year ending in September.
There were 1.26 million bankruptcy petitions filed in 2012, which represented a 14% drop and the lowest level in several years. Of those related to business filings, Chapter 11s declined 11% and Chapter 7s fell 16%. The AO was quick to note that the statistics shouldn't be used in a broad-brush fashion, as the range between regions was massive when comparing some districts (still, all 12 reported fewer filings than in 2011), and that the drop rate doesn't necessarily foretell any kind of spike in the pace of economic rebound:
"The relationship between bankruptcy filing and other economic indicators is a complex one. Several additional factors may also explain the recent declines in bankruptcy filings, including household deleveraging and creditors abandoning attempts to secure payments from debtors who have few or no assets."
In other news, perhaps the clearest sign to date that Detroit will eventually file for Chapter 9 came this week as attorney Kevyn Orr became the apparent favorite for appointment as Detroit's emergency financial manager. Orr, who is based in Washington, DC, is perhaps best known for his key role in restructuring Chrysler when it was going through the bankruptcy process. Chrysler's turnaround, partly assisted by federal funds, into profitability has been largely seen as successful despite a positive outcome looking very unlikely at the beginning of the process. State officials are trying to get the city to address its deep, well-documented problems in expedited fashion. Detroit would be the largest municipal bankruptcy filing in U.S. history, and dubiously holds the third-worst rating among municipalities in the nation by Moody's Investor Services' metrics, behind only Stockton, CA and Jefferson County, AL. Both of those have already filed for Chapter 9 protection.
The Hostess bankruptcy proceedings have taken a turn as well with a planned auction for some of its brand-name assets, including Twinkie and Drake, being cancelled this week. With no bids in the lead up to the planned auction, the assets that included the branding rights, equipment and production facilities were instead bought out by Apollo Global Management LLC and Metropoulos & Co. So, it seems the celebrated Twinkie will return to shelves sometime in 2013, though many of the jobs lost in a union-prior ownership dispute will not. The Hostess bankruptcy is perceived to have come largely from poor management as well as, to a lesser extent, an inability to rework contracts with unions.
- Brian Shappell, CBA, NACM staff writer
Manual of Credit and Commercial Laws, Volume III: Construction Issues—Get your Updated Volume Now!
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Trade figures remained robust in January, as the United States exported $184.5 billion in goods and services during the first month of 2013.
This represents a minor decrease from the December 2012 total of $186.4 billion, but exports have continued to float at historic highs. Over the last 12 months, total exports of goods and services hit $2.2 trillion, which is 39.4% above the level of exports in 2009. Throughout the last year, exports have continued to grow at an annualized rate of 11.4%, in comparison with export growth four years ago.
The U.S.' remarkably buoyant export figures have raised a few eyebrows, however, among those who've noted the similar tactics taken to support the export sector in the U.S. and in crisis-racked Europe. Both have faced allegations of currency manipulation, but since the U.S. export sector continues to perform more strongly than its European counterpart, "more criticism has been leveled at the U.S. on this count," said NACM Economist Chris Kuehl, PhD in a recent Strategic Global Intelligence Brief, "assertions that the Federal Reserve is deliberately keeping rates low as a means by which to bolster U.S. exports."
"There are many that feel that the European Central Bank (ECB) is engaged in much the same process," he added.
Nonetheless, export growth has been strongest with nations with which the U.S. has a trade agreement, most notably Panama. Purchases of U.S. goods by the Latin American nation have experienced a 32.6% annualized increase when compared to 2009. Other top buying countries include Russia (25.6%), with whom the U.S. normalized trade relations late last year, Chile (25.3%), Peru (23.9%), Venezuela (23.6%) and the United Arab Emirates (23.4%).
- Jacob Barron, CICP, NACM staff writer
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Gwendolyn Stroops, CCE, credit services manager for Smith Pipe & Steel Company, Inc., remembers her first Credit Congress a couple of decades ago, and the general makeup of the credit industry then: a lot more men, especially in the key roles. However, the lopsided ratio, from entry to executive-level credit jobs, has changed quite a bit.
In recognizing March as Women's History Month, NACM interviewed Stroops, who is also an area director for NACM's Credit and Financial Development Division (CFDD), which, in its original form, was an education group for women in credit. Stroops has seen the role of women in the industry evolve quite significantly since the start of her career in the early 1980s. "I remember us having to wait to be able to go to events like Credit Congress because it was our bosses, the men, who went," she said. "Women were assistants, they weren't management."
Lynn Kendrick, CBA, credit manager with Arkansas Laminating and CFDD vice chairman/chairman-elect, noted that the lack of advancement for women in credit departments and beyond was an issue as recently as 15 years ago, in some corners, but the ascension has become apparent today. "Since I've been in the business, it's been pretty consistent," she said. "More women are more involved with their careers instead of just staying home. Now, we can truly do both: have a family and a career."
Michelle Dunn, an author and consultant specializing in credit and collections, has also noticed a sea change where the gap in numbers and positions is closing, as has the treatment of women in the credit industry. "When I started my agency, there was only one other woman-owned agency at the time, and I was often the only woman in a room [of credit professionals]."
"In 1998, I started calling members to network with, as I wanted a mentor. Myself and one other woman I talked to had some very negative experiences. They said things like 'I don't think you'll do well' or 'I don't have time to answer your questions,'" said Dunn. "I don't think it is like that at all now."
For a new credit manager unaware of the history, such stories might surprise. And it's hard to pin down some sort of date where the tide turned, and the reasons behind such are numerous and complex. Kendrick believes a part of it is akin to general changes in attitude, an effort to incorporate more women at all levels of business operations, including the executive level. Dunn noted societal reasons too, though she also feels it could be partly because women offer a different approach and demeanor that can be helpful in a variety of credit situations, especially tough collections. For Stroops though, one particular word came to mind: education. "Years ago, there was such an influx of former housewives getting into companies," Stroops said. "When I was at Goulds [Pumps, Inc., ITT Fluid Technologies], we wanted all our credit individuals to become educated. Most of the people working for us at the time were women, and once they started obtaining an education, getting designations, it became more of a career for these ladies than a job."
"It really evolved into a profession," said Stroops. "They worked their way up and some eventually got into senior roles. So, I think the evolution of credit-specific education has got to be a big piece of it."
- Brian Shappell, CBA, NACM staff writer
"I started calling members to network with, as I wanted a mentor."
"We wanted all our credit individuals to become educated."
Pulled from the previous story, both quotes convey the vision of NACM's Credit and Financial Development Division (CFDD): to be a leading provider of professional development opportunities through learning, coaching, networking and individual enrichment.
Meet and get to know some of the most valuable resources in the industry: other credit people like you.
Click here to learn more about this highly-social group!
In response to the brazen threats made by young North Korean leader Kim Jong-Un, the U.S. Treasury has forbidden U.S. companies from doing business with several new individuals and entities in the past week.
Most recently, Treasury designated the Foreign Trade Bank (FTB), North Korea's primary foreign exchange bank, as well as the chairman of North Korea's Second Economic Committee (SEC) Paek Se-Bong. Last week sanctions were levied against Mun Cho'ng-Ch'o'l, a Tanchon Commercial Bank (TCB) representative who served in Beijing, and Yo'n Cho'ng-Nam and Ko Ch'o'l-Chae, both based in Dalian, China and representatives of the Korea Mining Development Corporation (KOMID).
Each of the new designees have ties to North Korea's weapons programs, specifically KOMID, which has offices in multiple countries around the world and facilitates weapons sales for the North Korean regime. TCB is KOMID's financial arm, financing sales and assisting with transactions, whereas FTB is a state-owned bank that Treasury described as a "key financial node in North Korea's weapons of mass destruction apparatus."
Designations prohibit transactions between the named entities and any U.S. person. Anti-Money Laundering (AML) rules in the U.S. also require companies to ensure that they're not selling to any other company or state entity that might be supporting any of Treasury's designees, which could be hidden further downstream in a transaction.
AML violations have recently caught the eye of lawmakers, and Treasury's most recent sanctions came on the heels of a Senate Panel's hearing on enforcement and compliance. "Holes in banks' anti-money laundering systems can protect funds stolen by corrupt leaders and drug cartels, help sanctions violators and enable terrorist financing," said Senate Banking Committee Chairman Tim Johnson (D-SD). "To address this threat we must understand how banks' safeguards malfunction and assess the way the government enforces our AML rules."
In recent years, the U.S. has brought major AML enforcement actions against global banks that allowed money to flow through the financial system in a concealed way. Violations of the Bank Secrecy Act by some of these financial institutions have generated $5 billion in fines and forfeitures.
- Jacob Barron, CICP, NACM staff writer
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