eNews September 12, 2013

September 12, 2013

eNews

News Briefs

  1. Committee Recommends Ditching Identification Provisions on Virginia Credit Reporting Bill
  2. Republican Lawmaker Wants Federal Review of Attorneys' Chapter 11 Billing Practices, Venue Shopping
  3. Concerns Grow Over a 2013 Bankruptcy Big Enough to Rival Enron
  4. Chinese Trade Growth Foretells Improved Global Picture?
  5. U.S. Exports Stay Up in July, Nearly Match June Record
  6. Business Bankruptcies Continue Free-Fall in August

 

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Committee Recommends Ditching Identification Provisions on Virginia Credit Reporting Bill

A report prepared by an ad hoc committee formed to study a Virginia bill that would affect commercial credit reporting in the state suggested removing some of the legislation's most controversial provisions, including a requirement that commercial credit reporting agencies identify the source of so-called "negative information" to the subject of a report.

The committee, formed within the Virginia Small Business Commission to study House Bill 2198, presented the report to the full Commission at its meeting this week. After briefly introducing and submitting the report, the Commission urged proponents and opponents of the bill to continue their work on the legislation with the ad hoc committee's report in mind. State Senator and Commission Chair Frank Ruff, Jr. (R) urged the bill's sponsor, Delegate Michael Watson (R), to be prepared to compromise on any final legislation that emerges from the debate over HB 2198.

Recommendations in the ad hoc committee's report indicated a great degree of trust in the commercial credit reporting world's existing self-regulatory format, wherein subject companies can already view their report should they like to, and errors are rare and inaccuracies are quickly addressed. "We agree that while both sides have their own unique concerns, there are procedures in place within the credit reporting industry to provide an avenue for businesses to contest erroneous information," said the report. "While this system appears to have its own flaws, we must defer to the individual commercial credit reporting agencies (CCRAs) to conduct their operations in a manner appropriate to their industry."

The report also suggested that HB 2198 be more closely revised to resemble a California statute that both guarantees commercial credit reporting agencies the right to protect the identity of their sources of trade credit information and codifies a process by which the subject of a report may dispute information contained within their report. "This will insure that CCRAs will not have to face a 'hodge-podge' of state laws, a concern raised by the industry, while providing businesses an opportunity to examine their credit reports for erroneous information and to take appropriate action when discrepancies are found," said the report. "The major substantive change will be to remove from HB 2198 the requirement for the credit report to include information identifying the source and date of the negative information and to replace it with a provision permitting the CCRA to protect the identity of sources of information to be used in a commercial credit report."

NACM has opposed HB 2198 since it was introduced, and will continue to monitor the legislation to ensure that the commercial credit industry's perspective is considered and that no bill that affects the free and open exchange of credit information becomes law. If you have any questions or comments about HB 2198, please contact Jacob Barron, CICP, government affairs liaison, at jakeb@nacm.org.

- Jacob Barron, CICP, NACM staff writer

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Republican Lawmaker Wants Federal Review of Attorneys' Chapter 11 Billing Practices, Venue Shopping

A Midwestern senator has put American bankruptcy attorneys in his proverbial crosshairs over what he characterized as the possible "abusive practices" of some professionals in the industry. The lawmaker wondered in a publicly released letter if updated federal guidelines under Bankruptcy Code Section 330 would do enough to protect creditors while also calling for a review of forum (court) selection practices.

In a letter to Gene Dodaro, comptroller general of the United States, Sen. Charles Grassley (R-IA) requested a formal Government Accountability Office (GAO) review of fees involved in corporate bankruptcy cases, especially large ones. Grassley, the ranking member on the Senate Judiciary Committee, makes the request in advance of coming guidelines for compensation and reimbursement terms in large corporate Chapter 11 cases. The guidelines, issued by the Department of Justice to assist U.S. Trustees when reviewing applications for compensation and reimbursement, will be enacted on November 1.

"It is imperative, in a court of equity like the Bankruptcy Court, that Congress monitor whether large corporate Chapter 11 cases are 'cash cows' for certain professionals at the expense of creditors and debtors alike, thereby subverting Congressional intent," Grassley wrote. He piggybacked the request with another to review the issue of venue shopping and whether it contributes to excessive fees being paid to legal professionals by creditors and debtors.

The letter specifically asked for the following examinations and subsequent reporting:

  1. "Determine whether bankruptcy courts and the Department of Justice have access to sufficient information to assess the reasonableness of professional fees in large Chapter 11 cases."
  2. "Determine whether certain jurisdictions maintain lax standards that encourage excessive fees and, thus, prevent a uniform system for determining reasonable fees and further forum shopping."
  3. "Determine whether the new Department of Justice Guidelines will prevent excessive fees in the future and, if not, whether legislation is needed to address this problem."
  4. "...Survey a broad range of bankruptcy courts as well as the Department of Justice and other stakeholders to determine whether venue changes could assist in reducing abusive billing practices by professional firms."

- Brian Shappell, CBA, CICP, NACM staff writer

Call for Proposals for NACM's 2014 Credit Congress

Be one of the impressive session speakers on cutting-edge issues at the 118th NACM Credit Congress and Exposition from June 8-11 at the Rosen Shingle Creek Resort in Orlando, Florida.

Submit your session proposal by October 11, 2013, and share this invitation with others who have knowledge and insight that will benefit our delegates.

Join our impressive keynote speakers and take the opportunity to build relationships with others in the field of business credit and finance.

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Concerns Grow Over a 2013 Bankruptcy Big Enough to Rival Enron

What was once a whisper about Energy Future Holdings Corp.'s potential insolvency has turned into a near full-on scream. Some now predict the company, whose outstanding debt exceeds $40 billion, will careen into a bankruptcy filing during 2013's fourth quarter.

Though early rumors can be traced back to 2012, Energy Future Holdings is being watched for a Chapter 11 more now than ever with ratings agencies and the media holding a spotlight to the deep financial problems plaguing the Texas-based company. Moody's Investors Service recently downgraded the outfit's corporate family rating (to "Caa1") and maintained a negative outlook. It predicted that financial problems at an affiliate will continue to drastically increase the "potential for contagion risk." It also noted that the overleveraged company has only two viable sources for liquidity, and "neither source is strong or reliable."

In addition, the likelihood of the company meeting its 2014 debt maturity obligations is doubtful, to say the least. The high supply of natural gas domestically, and resulting price drops, have been a negative factor going back a couple of years. Both Moody's and news sources like the Wall Street Journal have noted that the size of outstanding debt actually exceeds that of infamously large Chapter 11 cases Enron and WorldCom. Both were among the top five non-financial corporate bankruptcies in U.S. history. Granted, the overall impact of a filing and company worth of Energy Future Holdings would shy in comparison to Enron and WorldCom.

Concerns regarding the high debt and solutions, or lack thereof, for Energy Future Holdings led Moody's to publish a report as far back as March titled, "Energy Future Holdings Corp.: Too Big to Liquidate."

- Brian Shappell, CBA, CICP, NACM staff writer

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Chinese Trade Growth Foretells Improved Global Picture?

China's growth appears to be back on track somewhat, as the export-dependent powerhouse expanded its trade surplus by much more than forecast.

Official statistics released by China this week indicated that its trade surplus has ballooned to $28.5 billion, well above the $20 billion markets had expected. The surplus was just under $18 billion in July. Also exceeding projections were key categories like overseas shipments, up 7.2% from August 2012. That was more than two full percentage points above July's growth, according to China's General Administration of Customs. Such improvement can be tied to a faster pace of growth in the United States than earlier in the year and through much of 2012 and that the European Union, though still troubled in areas like employment and debt, has statistically ended its recession and is poised for some improvement.

Analysts noted that the August rebound in China puts projections for the calendar year growth rate at 7.5%, essentially where the government wants it. As such, inflationary pressures appear to be kept at bay for August, though they are an ongoing concern in the middle and long term. Still, the improvements and the better mood in China seem to underscore just how much, despite attempts to diversify, China's economy is tied to consumer culture, confidence and buying power in the U. S. and the E.U.

- Brian Shappell, CBA, CICP, NACM staff writer

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U.S. Exports Stay Up in July, Nearly Match June Record

The United States exported $189.4 billion in goods and services in July 2013, nearly matching June's record high of $190.5 billion.

Data from the U.S. Commerce Department's Bureau of Economic Analysis (BEA) showed that exports of goods and services over the last 12 months have totaled $2.2 trillion, which is 41.7% higher than the level of exports in 2009, the year before President Barack Obama announced the start of his administration's National Export Initiative. "These numbers demonstrate that President Obama's National Export Initiative continues to help American businesses thrive in international markets," said Export-Import Bank Chairman Fred Hochberg. "Exports are a critical component of our nation's economic success, and I look forward to seeing more 'Made in the USA' labels on shelves around the world."

The BEA also reported that over the last 12 months, among the major export markets, the countries with the largest annualized increase in U.S. goods purchases when compared to 2009 were Panama (28.6%), Russia (22.1%), United Arab Emirates (21.9%), Peru (21.3%), Chile (20.9%), Colombia (19.7%), Hong Kong (19.5%), Argentina (18.3%), Ecuador (18.0%) and South Africa (17.7%).

Exports have become a lynchpin in the Obama Administration's economic recovery effort, and their importance to the U.S. economy will only increase as baby boomers exit the workforce and begin to consume less, according to NACM Economist Chris Kuehl, PhD. "The transition of the baby boom generation from prime consumption and prime productivity will take a toll on growth rates for the next several years," he said in a recent Strategic Global Intelligence Brief. "The goal of 3% growth on a consistent basis will be that much harder to attain unless there is something that boosts that productivity or the consumption."

Both of those needs will be increasingly met by other countries. "The U.S. will become ever more dependent on foreign markets for the consumption needed to boost economic growth," Kuehl said. "It will also become more dependent on other nations for the productivity that is needed."

- Jacob Barron, CICP, NACM staff writer

The Lien Waiver Process Needs to be Managed

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Business Bankruptcies Continue Free-Fall in August

A total of 3,789 businesses filed bankruptcy in August, as commercial cases continued to plummet as they have throughout 2013. The August figures represented a 24% decrease from the 4,973 filings during the same period in 2012. Commercial Chapter 11 filings also declined in August, as the 590 filings last month were 10% lower than the 652 filed in August 2012.

The data, provided by Epiq Systems, Inc. to the American Bankruptcy Institute (ABI), also indicated 15% declines in both total bankruptcies and total noncommercial filings on a year-over-year basis in August 2013. Month to month there were slight increases, as total filings were up 1% to 88,902 from July's total of 87,715. Noncommercial filings were up 1% as well, from 84,110 to 85,113 in August, and commercial filings increased 5% from the July total of 3,605.

This trend of stark declines in year-over-year bankruptcy filings is expected to continue, according to ABI Executive Director Samuel Gerdano. "The deep and sustained drop in bankruptcies reflects lowered consumer borrowing since the financial crisis, resulting in less debt on household balance sheets," he said. "Total bankruptcy filings will be just over one million new cases filed this year, the lowest figure since 2008."

Average daily filings for August 2013 were 2,868, marking a 15% decrease from the 3,370 total daily filings registered in August 2012. States with the highest per capital filings rate, measured as total filings per 1,000 population, through the first eight months of 2013 were Tennessee (6.77), Georgia (5.92), Alabama (5.78), Utah (5.42) and Illinois (5.30).

- Jacob Barron, CICP, NACM staff writer

 

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