August 8, 2013
Commercial Chapter 11 filings jumped in July, as last month's 536 filings marked an 8% increase over June's figures. Other categories notched smaller increases, including total commercial bankruptcy filings, up 3% from 3,468 in June to 3,581 in July, and total bankruptcy filings overall, which moved to 87,684 in July, up 5% from June's total of 83,603.
Despite the month-to-month increase, however, bankruptcies on a year-over-year basis continued their decline. Total filings in the U.S. for July were 10% lower this year than they were last year, and commercial filings in particular have continued to register huge year-over-year declines. Total commercial cases for July 2013 decreased by 23% from July 2012's total, and Chapter 11 filings fell by 24% last month when compared to the same period last year.
While the reasons for the jump from June to July are harder to pinpoint, the reasons for the broader decline in bankruptcies "include historically low interest rates, tighter lending standards that have led to reduced borrowing and increased frugality on the part of many businesses, especially small businesses," according to Bruce Nathan, Esq., partner with Lowenstein Sandler LLP. "This trend is likely to reverse itself when interest rates increase and lending standards are relaxed."
The ongoing decline in commercial filings has taken a toll on the restructuring industry and, in many ways, reflects a shift away from traditional Chapter 11s and toward shorter, more predictable proceedings. "Restructuring professionals have expressed optimism about the increase in their business in 2013, although it is more likely they will see an improvement in 2014," Nathan said. "However, the days of protracted multi-year Chapter 11 cases are over as a result of the increased frequency of pre-packaged and prearranged Chapter 11 cases and quick sale cases, which end far more quickly."
The month-to-month increase in last month's figures would seem to conflict with data from the July Credit Managers' Index (CMI), which saw credit professionals reporting significant improvement in filings for bankruptcies, a factor that jumped from 56.8 to 58.2 in the latest report. However, as the CMI tends to lead other indicators by several months, taken together, July's commercial bankruptcy figures and the July CMI suggest a continued drop in bankruptcies three months from now. In fact, April's CMI report anticipated the July increase in commercial bankruptcies, as respondents reported a decline in the filings for bankruptcies category that month.
According to American Bankruptcy Institute (ABI) Executive Director Samuel Gerdano, should the decline in bankruptcies continue, as the CMI suggests, 2013 could have the lowest total new bankruptcies since before the financial crisis.
- Jacob Barron, CICP, NACM staff writer
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Though a trade pact between the United States and several Sub-Saharan African nations does not expire until 2015, the Obama Administration started the push to renew and expand trade in the region amid growing competition.
The Administration began negotiations this week for a renewal of the African Growth and Opportunity Act, originally passed in 2000. This would include some expansion and improvement to the Act, particularly in light of the fact that the U.S. has slipped to the second largest trading partner in this increasingly important region in recent years. The latest statements came on the heels of a "Doing Business in Africa" program spearheaded by the U.S. Commerce Department in July. There, Under Secretary of Commerce for International Trade Francisco Sanchez said that U.S. companies that seize existing and growing opportunities in Africa would increase exports and employment opportunities, perhaps significantly. Commerce statistics indicate that Sub-Saharan Africa is home to seven of the 10 fastest-growing markets in the world and that growth for the region is expected to exceed 6% by 2014. U.S. trade in the region tripled in the past decade, and $23 billion in goods and services were exported to the region in 2012 alone.
"The next great economic battleground is clearly Africa," said NACM Economist Chris Kuehl, PhD. "Even if all the encouraging predictions fail to come true, the sense is that Africa is the last great economic expansion frontier, and the competition is already in evidence. The latest statements from the White House suggest that [President Barack] Obama did some negotiating while he was in the region."
The problem for the U.S. is that it is playing catch-up, given China's deep investment and emersion in the region. China surpassed the U.S. as Africa's top trading partner in 2009. The European Union also appears intent on expanding cooperation with African states. Still, Kuehl said U.S. businesses and policymakers should be encouraged by the inherent advantages they possess.
"The most important advantage for the U.S. is that it has the best market for African goods and, thus far, the U.S. has done a better job of enticing cooperation from the states in Africa," Kuehl said. "China is too similar to the colonial powers of old as they are really only interested in the continent's raw materials and commodities. They also want to flood the region with their exports as opposed to helping Africa build its own export infrastructure. The trade pact with the U.S. allows African states to sell to the U.S. consumer with more access and a minimum of barriers. China is not offering that, and neither is the EU."
- Brian Shappell, CBA, CICP, NACM staff writer
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Export-Import Bank (Ex-Im) Chairman Fred Hochberg highlighted the important role his agency plays in supporting U.S. exporters in a speech to the Center for American Progress (CAP) last week. In the process, he also rebutted the philosophical arguments against renewing the Bank's charter, which have become newly resurgent among conservatives in Congress.
On its surface, Ex-Im would seem to be an agency that lawmakers from both sides of the aisle could support. The bank operates independently, fills in gaps in private export financing, approving a record $35.8 billion in total authorizations and another record $6.1 billion in small-business export sales in Fiscal Year 2012. Most importantly, it's turned a $1.6 billion profit for the American taxpayer since Fiscal Year 2008.
But free market advocates have long argued that Ex-Im should be shuttered, and their case against the bank has recently entered the political mainstream. For example, in a May hearing, Senate Committee on Banking, Housing and Urban Affairs Ranking Member Mike Crapo (R-ID) voiced concerns that Ex-Im exists only to provide "welfare to some of America's largest corporations."
Crapo was also one of 19 Republicans to vote against the reauthorization of Ex-Im's charter in 2012, an ongoing effort driven by fiscally conservative groups like the Club for Growth that most recently manifested itself in a push to block Hochberg's approval for another term as Ex-Im chairman. Hochberg was saved by an 11th hour Senate deal on filibuster reform, but had he not been approved by July 20, Ex-Im wouldn't have had the three-board-member quorum its charter requires to approve financing agreements, and therefore would've been forced to shut down.
In his remarks to CAP, delivered in conjunction with Ex-Im's release of its annual competitiveness report, Hochberg focused on the threats facing U.S. exporters abroad, particularly from the increasingly aggressive export support policies of some of the nation's biggest competitors. "In this year's competitiveness report, we found that China, Korea, Japan and others are ramping up government export support," said Hochberg. "Yet, here at home, Congress has required the Treasury Department to begin negotiations with our competitors to end export credits. To end export credits when our competitors are playing by a completely different set of rules...this would be a self-inflicted wound our economy cannot sustain."
Ex-Im's competitiveness report found that U.S. exporters often compete in markets and sectors that other countries have targeted as a "national interest," making them the focus of national policies designed to maximize the flow of benefits to the state and making it harder for U.S. exporters to compete with foreign companies receiving state-backed sweetheart export financing deals. Moreover, the report argued that financing is increasingly being offered outside of Organization of Economic Cooperation and Development (OECD) guidelines, extending beyond low interest rates to include loan arrangements aimed at swaying purchase decisions.
Exporters worldwide have also been forced to contend with a decline in commercial bank capacity and appetite for trade financing, placing a greater burden on state-affiliated export credit agencies like Ex-Im. "Make no mistake, foreign governments would love to see Ex-Im go out of business and swoop in and snatch the $50 billion worth of exports we financed last year. They would love to have those 255,000 American jobs for themselves," Hochberg warned. "Failing to reauthorize our charter next year is a particularly bad idea in light of the growth of the global middle class and the unprecedented competition America faces from Asia and Russia, among many others."
The complete Ex-Im competitiveness report can be found here.
- Jacob Barron, CICP, NACM staff writer
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Significant progress has been made in recent days in two key Chapter 9 cases, including one that had been the biggest in U.S. history prior to the headline-stealing Detroit filing last month.
The municipal bankruptcy filing in Jefferson County, Alabama, presently the second largest on record, awaits a vote from creditors after nearly two years of wrangling. U.S. Bankruptcy Judge Thomas Bennett approved current plans ahead of the creditor's vote, although a final confirmation hearing will be needed this fall. Creditors, most notably bondholders of sewer renovation-related debt, are expected to take massive losses on what they are owed as part of the deal.
Meanwhile, in San Bernardino, California, only one objecting party remains in the way of that city's Chapter 9. A deal involving collective bargaining agreements with unions representing active workers has led the San Bernardino Public Employees Association to withdraw its objections to the municipality's bankruptcy proceedings. The much larger California Public Employees' Retirement System (CalPERS), however, continues to fight against San Bernardino on the issue of eligibility as well as what kind of realistic reorganization plan, if any, the city is ready to unveil. U.S. District Court Judge Meredith Jury has stated on multiple occasions that she plans to move forward with an eligibility hearing on Aug. 28.
- Brian Shappell, CBA, CICP, NACM staff writer
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Congressional trade leaders called on the U.S. International Trade Commission (ITC) last week to investigate India for unfair and discriminatory trade policies.
In a letter to ITC Chairman Irving Williamson, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) and Representatives Dave Camp (R-MI) and Sander Levin (D-MI) requested a full report on Indian industrial policies that discriminate against U.S. investment in the interest of supporting domestic Indian companies, as well as on the effects these potential barriers have on the U.S. economy and employment market.
India, the world's second largest country by population, has been an important U.S. regional ally, but goods and services exports from the U.S. to the south Asian nation have remained disproportionately low. In 2011, U.S. goods exports to India topped out at $22.3 billion, and total exports, including services, only reached about $33 billion. For comparison's sake, total U.S. exports to South Korea in 2011, before the U.S.-South Korea Free Trade Agreement (FTA) had even taken effect, were nearly twice as high, at $60 billion, despite the fact that South Korea's population is less than 10% of India's.
Granted, India and South Korea are two very different countries, but officials in Washington still want to address that disparity, which they believe is caused in part by India's "complex, non-transparent tariff and fee system and byzantine and overly burdensome customs procedures," among other policies.
"India maintains and continues to put in place measures that appear to contradict its stated domestic growth objectives," said the letter. "More recently, India has introduced new localization-forcing measures such as local content and technology transfer requirements in the green technology and information and communications technology sectors. And India has not yet taken action to fully and effectively protect and enforce copyrights, including in the digital environment, and has applied its patent law in a discriminatory manner, particularly against innovative U.S. pharmaceutical companies, so as to advantage its domestic industries."
On broader terms, the Indian government has focused on developing and supporting Indian industries by forcing foreign firms to use local facilities and suppliers and to transfer their intellectual property to Indian entities. The letter alleges that India is likely to adopt additional measures to these ends and raises the issue of the example that India is setting as an influential regional economic powerhouse, and the ramifications that could have on U.S. exports to other countries down the road. "We are very concerned about the broader impact that India's trade policy may be having on the global trading system, both in terms of the model it is setting for other countries and the drag it is exerting on multilateral trade negotiations," they added.
The ITC will have until late 2014 to cobble together the report using existing sources and a forthcoming survey of U.S. firms.
- Jacob Barron, CICP, NACM staff writer
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