eNews February 6, 2014

February 6, 2014


News Briefs

  1. Creditors' Committee in Crosshairs of Detroit Bankruptcy Case
  2. Retail, Banking Industries Endorse Two Bills, Collaboration on Payment Security
  3. Global Manufacturing PMI Foretells 2014 Recovery
  4. Mississippi Advances Lien Law Bill
  5. European Commission Calls Member Nations Out for High Corruption
  6. State Department Report Clears Environmental Hurdles for Keystone XL Pipeline


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Creditors' Committee in Crosshairs of Detroit Bankruptcy Case

The headline-grabbing Detroit bankruptcy case had a new development last week with the city's attempt to disband the creditors' committee involved in the country's largest Chapter 9. 

Attorneys representing the city asked Judge Steven Rhodes to dissolve the creditors' committee, arguing that it could stymie mediation efforts in the municipal bankruptcy, characterizing it as counterproductive, imprudent and unnecessary. The judge is expected to rule on the matter during a February 19 hearing. Should Rhodes disband the committee, it could encourage attempts to disband committees in other bankruptcies of various types going forward.

"Generally, there should be committee activity in any case," said Wanda Borges, Esq. of Borges & Associates, LLC. "I am absolutely pro-creditors' committee. It can benefit almost any case. Any time I’ve seen a case allowed to be run without the input of creditors through a committee, I found the debtor to run amok and do whatever it wants, to the detriment of the unsecured creditors.” Granted, Borges noted that municipal bankruptcies are complex, especially in Detroit's case, and that there could be some mitigating circumstances.

Borges has mixed feelings on this situation and believes the dismissal of the committee might not be as detrimental as it would in most cases. The motion to disband the committee is based on the fact that four of its five members are represented by counsel and actively involved in other mediation efforts, such as a retiree committee, in the case. The argument is that a creditors' committee in Detroit is akin to having a second bite of the apple, so to speak.

“It's a rare case when I don't think a creditors' committee should be in place, but I’m impressed with the argument put together by Detroit’s counsel and tremendously impressed by who the mediators are,” Borges said. “There is already active participation with these constituents. What is also very interesting to note is there are no trade creditors appointed on this committee. There’s apparently not an expectation that trade creditors are not going getting paid.” 

The importance of creditors' committees has long been defended by those in the NACM community, including past NACM National Chairman Val Venable, CCE, director of credit with Ascend Performance Materials. At the 2013 NACM Credit Congress, Venable spoke during a field hearing on bankruptcy reform with the American Bankruptcy Institute (ABI) about the critical importance of active creditors' committees in order to protect the interests of unsecured creditors, especially against preference situations. "I see a strong correlation between the lack of an active creditors' committee and an increase in unjustifiable attempts at recovery of a purported preferential payment," said Venable, who is also a past co-chair of ABI’s Unsecured Trade Creditors' Committee.

"By having the debtor's business practices vetted by the committee, they can usually work with their financial professionals to help identify the truly extraordinary payments to insiders or creditors," she added. At the hearing, Venable argued that, if anything, committees improve the financial prudence of bankruptcy cases, though she was speaking primarily about Chapter 11 filings.

- Brian Shappell, CBA, CICP, NACM staff writer

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Retail, Banking Industries Endorse Two Bills, Collaboration on Payment Security

The banking and retail industries set their differences aside this week to endorse a pair of bills designed to help prevent future data breaches and reduce fraud. In a hearing held in the Senate Banking Committee's Subcommittee on National Security and International Trade and Finance, representatives from both industries also promised future collaboration, telling Congress that all participants in the payments system bear the responsibility of keeping the system secure and reliable.

Representatives from both industries urged Congress to take a comprehensive, cross-industry approach to help stop fraud in its tracks, using their testimony to endorse two pieces of legislation. James Reuter, executive vice president of FirstBank, testifying on behalf of the American Bankers Association (ABA), offered his industry's support to S. 1927, the Data Security Act of 2014, which would establish a national standard for data security and breach notification, while Mallory Duncan, senior vice president and general counsel for the National Retail Federation (NRF), urged Congress to enact the Cyber Intelligence Sharing and Protection Act (CISPA), which he argued would make it easier for the commercial sector to share information about cyberthreats and ensure that cybercrimes are thoroughly investigated and prosecuted.

"When a criminal breach occurs in the payments system, all of the businesses that participate in that system and their shared customers are victimized," Duncan said. "Rather than resort to blame and shame, the parties should work together to ensure that the data breach is remedied and steps are taken to prevent and mitigate future breaches."

Just earlier this month, banking and retail were more combative over which party bore greater responsibility for Target Corp.'s massive data breach. Bankers argued that the interchange fees that they and other card companies collect from card-accepting merchants help to prevent breaches such as Target's, and that the retail industry's continued efforts to challenge a $5.7 billion antitrust settlement with Visa and MasterCard were harming the cause of payment security. Retailers countered that the rules of banks and card processing networks that force companies to accept less secure forms of payment, like traditional credit and debit cards, actually "aid and abet" the type of data theft committed against Target and millions of consumers.

Reuter and Duncan toned down the rhetoric for the hearing, but despite each of them endorsing a team effort to prevent data breaches involving payment systems, each witness took the opportunity to defend their industry. Reuter specifically noted that banks typically receive pennies for each dollar of fraud losses, and that while banks bear over 60% of reported fraud losses, they have accounted for less than 8% of reported breaches since 2005. Duncan, on the other hand, renewed NRF's call on the banking industry to support innovation in payment options by replacing current debit and credit cards with newer technologies that rely on encrypted personal identification numbers rather than with proprietary cards that still rely on signatures.

NACM is currently monitoring both bills and will report on their ramifications for B2B vendors.

- Jacob Barron, CICP, NACM staff writer

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Global Manufacturing PMI Foretells 2014 Recovery

The latest overall Global Manufacturing PMI produced by JPMorgan and Markit shows that global production largely maintained previous gains. The PMI tracked at 52.9 for January, just off of December's 53.0 mark, which was the best reading since mid-2011.

By country, statistics indicate particularly strong expansion conditions for the United Kingdom and Japan, with Germany's recovery not far behind. The overall Eurozone Manufacturing PMI surged to a 32-month high (54) for the 28-nation bloc. New order inflows have supported the renewal of long-needed job creation. Even struggling Greece and Spain saw their PMI levels track at highs not yet seen this decade.

Meanwhile, analysts noted that the somewhat weaker output and order growth in the United States was not alarming. Though the Markit US Manufacturing PMI dropped from 55 in December to 53.7 in January, disruptive weather—not considered a long-term trend or threat—was identified as the overwhelming culprit. It would seem a significant PMI rebound is expected in February or, in the case of additional poor winter weather, March.

Global Manufacturing PMI

Country Manufacturing PMI Dec. 2013 Jan. 2014 Notes
 Australia  47.6  46.7 New orders still lacking, in part for seasonal reasons
 Brazil  50.5  50.8 Output increases falling behind expansion of orders
 Canada  53.5  51.7 Still in expansion, but by slowest pace since April
 China  50.5  49.5 Exporting down noticeably for second straight month
 Egypt (non-oil)  52.0  48.7 Drop tied mostly to domestic demand, as exports rose
 France  47.0  49.3 Four-month high giving hope that downturn is easing
 Germany  54.3  56.5 At a 32-month high on return of surging foreign demand
 Greece  49.6  51.2 Competitive pricing has led to uptick in orders
 India  50.7  51.4 Orders up, but growing backlog shows capacity concern
 Indonesia  50.9  51.0 New order growth strongest in survey history
 Japan  55.2  56.6 Fastest purchasing activity, output rise in survey history
 Mexico  52.6  54.0 Exports surging, output/orders rise most in 12 months
 Netherlands  57.0  54.8 All components down though still above historic average
 Poland  53.4  55.4 New orders at three-year high, employment rise best ever
 Russia  48.8  48.0 Worst PMI in 55 months, private consumption slipping
 Saudi Arabia  58.7  59.7 Firm operating conditions, confidence boosts new work
 Spain  50.8  52.2 First drop in input costs in five months, first jobs rise since 2010
 South Korea  50.8  50.9 Improvements continue modestly, volatility a big threat
 Turkey  52.7  55.0 Declines across board, inflation up on exchange rate rise
 United Arab Emirates (non-oil)  57.4  57.1 Strong inflow of new work comprised most of expansion
 United Kingdom  57.2  56.7 Small dip, still well above average on domestic demand


- Brian Shappell, CBA, CICP, NACM staff writer

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Mississippi Advances Lien Law Bill

A bill that would expand lien rights to subcontractors and materials suppliers operating in Mississippi passed out of a state Senate Committee this week. S.B. 2622 advanced without any amendments and with only two dissenting votes, and now heads to the state House of Representatives for further consideration.

The bill is based on Georgia's lien statute, which observers in the state have said is preferable to a competing piece of legislation that would have been based on Alabama's lien statute. Its introduction earlier in January was driven by a ruling last year by the US Fifth Circuit Court of Appeals in Mississippi that reaffirmed a lower court's decision to find the state's Stop Notice statute unconstitutional. Stop Notices were one of the only means by which subcontractors and materials suppliers working in Mississippi could pressure general contractors for payment, and the Appeals Court ruling essentially limited lien rights in the state only to parties that had direct contracts with the project's owner.

Opposition to the bill has been mild but primarily driven by the general contractor community. Chris Ring of NACM's Secured Transaction Services (STS) noted that opponents of the legislation are missing the point. "Who does the vast majority of lending on these projects?" he asked. "Banks obviously lend on these, but they're being funded on the credit that subcontractors and materials suppliers provide as well. If you strip away their rights that they have on the money they're lending, that just means that fewer private jobs are going to be started in Mississippi. That's what owners and GCs should be extremely worried about."

STS continues to monitor the bill and will provide regular updates in the Newsmakers section of its website. To learn more about what STS offers to construction credit departments, click here.

- Jacob Barron, CICP, NACM staff writer

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European Commission Calls Member Nations Out for High Corruption

Corruption within the European Union costs its economy a staggering 120 billion euro annually, and a new report slams the efforts in many nations as "uneven," if not half-hearted.

The European Commission's EU Anti-Corruption Report released this week indicated that more than three-quarters of Europeans believe corruption is widespread despite stated increased efforts to stymie such practices and 56% believe matters have worsened during the past three years. The report noted that criminal laws banning corruption are largely in place, but enforcement is wildly inconsistent from nation to nation and intense investigations rarely occur within the areas with the worst reputations.

The report cited a recent Eurobarometer survey on corruption relevant to businesses, noting that 35% of those polled reported that corruption prevented them from winning a contract in the last year. The statistics indicate that corruption was most pervasive in construction, when looking at sectors, and in Bulgaria, Slovakia and Cyprus, when looking at nations. Frequent complaints included contract specifications that are "tailor-made for specific companies," conflicts of interest in bid evaluation, collusive bidding and unclear evaluation criteria. The Commission study also noted that problems with bribery were seen as most pervasive in the Czech Republic, the Netherlands and Slovenia.

"Corruption undermines confidence in democratic institutions and the rule of law, it hurts the European economy and deprives states from much-needed tax revenue," said EU Commission for Home Affairs Cecilia Malmström. "Member states have done a lot in recent years to fight corruption, but today’s report shows that it is far from enough."

Germany, Finland and Luxembourg were noted for their low levels of corruption and bribery and member states including Ireland and Malta, while still troubled, have shown real commitment to improvement in recent months and years.

- Brian Shappell, CBA, CICP, NACM staff writer

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State Department Report Clears Environmental Hurdles for Keystone XL Pipeline

The US State Department released its final report on the Keystone XL oil pipeline last week, raising no major environmental objections to the project. The multi-billion-dollar pipeline that would transport oil from tar sands in western Canada to the Gulf of Mexico has been a lightning rod for controversy, but the State Department's report undercuts the concerns of environmental groups that have passionately opposed the pipeline's construction on the grounds that it would exacerbate global climate change.

Reaching the same conclusion of its preliminary report in March, the State Department reiterated in its final report that preventing Keystone's construction would do nothing to stop the development of oil resources in Alberta. The report conceded that tapping Canadian oil sands will produce more greenhouse gases, but that no one infrastructure project would change the fact that the oil will be extracted somehow.

Opponents of the pipeline have argued that the pipeline would increase US dependency on fossil fuels and that the pipeline itself could leak and cause an environmental disaster. Proponents, who cheered the State Department's final report, argue that the economic benefits of the pipeline would be great and that securing oil from a friendly neighbor would reduce American dependency on oil resources in other more volatile areas of the world. Regardless, momentum now seems to be on the side of the project's supporters.

"With 43,000 jobs and a more energy-independent America on the line, this new study underscores what has been said all along about Keystone XL Pipeline: it's time to build," said Senator Mary Landrieu (D-LA) in response to the report. "This single project will inject billions of dollars into Louisiana and national economies and reduce our dependence on oil from hostile countries. Once again, another study has concluded that the Keystone XL Pipeline will have no significant impact on our environment. If we wait any longer to approve this project, we risk losing it for good. The studies are complete and the country is ready."

Weeks of evaluation still stand between this most recent report and any further action on the pipeline from the Obama Administration. Despite the absence of any major environmental issues for Keystone, its inclusion in the president's energy agenda is an open question and could have severe political ramifications for his own party.

- Jacob Barron, CICP, NACM staff writer


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