May 15, 2014
The 2011 financial meltdown of solar panel manufacturer Solyndra has not discouraged the Obama Administration, which had approved grants in excess of a half-billion dollars for the company before it went bust. Solyndra and a rash of other bankruptcies in the solar industry made it one to watch with a wary eye, but companies that made it through the industry downturn may now have renewed opportunities.
After going virtually silent on the issue for the past few years, President Barack Obama came out firing again in May, championing how positive solar could be for US businesses, using Walmart as an example of a cost-conscious corporation using alternative energy to its advantage. He also renewed a pledge to make solar a key component in a goal to reduce electricity consumption in federal buildings by 20% by the end of this decade. Administration staffers followed up with additional attempts to promote solar. While there was no direct talk of the widespread renewal of government investment and assistance, one could surmise such a stark push isnâ€™t simply a one-off.
"Clearly the president is reengaging in the discussion with the hot topic being about climate change again. Obviously something is going on," said Michael Joncich, manager of Credit Management Association's Adjustment Bureau. Joncich notably predicted the massive rough patch for the US solar industry, a result of market saturation, aggressive price-cutting from Asian competitors and other factors, in a Spring 2011 article in NACM's Business Credit.
With Asian and European manufacturers now having their own industry downturns, it appears conditions have stabilized somewhat domestically. Barring a reversal of conditions, creditors may be able to ease their concerns about the industry, even if only slightly.
"I guess it's a good sign we have not been hearing about anyone going down lately," Joncich said of the slowed trend of industry bankruptcies. "Those companies that survived the financial crunch in the last five years are better for it. They've made it through lean times and should be positioned to take advantage of the improved economy."
This economic rebound could be even more important than renewed interest by the White House. As big a factor as any in the fall of solar was that high upfront costs became an increasing obstacle as consumers showed elevated concern about the falling value of their homes and the security of their jobs. One veteran credit manager who was in the solar industry at the beginning of this decade said he believes any solar revival will be primarily on the shoulders of American consumers, not lawmakers. "I think solar is going to have a big future, as the technology is improving and youâ€™re going to get price parity eventually," said the credit professional, who asked to remain anonymous. "Would I consider going back? I definitely would."
- Brian Shappell, CBA, CICP, NACM staff writer
Credit Congress Session Highlight: Antitrust Essentials: Statute Navigation and Compliance
Speaker: Wanda Borges, Esq., Borges & Associates, LLCThe answer to the often-asked question, "Are there any new antitrust statutes to suit today's ways of doing business?" is no. Antitrust statutes haven't changed in years. However, case law abounds. The meaning behind Sherman Antitrust, Robinson-Patman and Clayton Act remains foreign to many credit executives. The concept that credit terms are equal to pricing is unfathomable to some credit grantors. And, the method by which most credit executives obtain and transmit credit information is changing on a daily basis. Your customers are also changing. Customers are demanding longer terms, yet the Robinson-Patman Act encompasses price discrimination in the sales of commodities of like grade or quality. This fast-paced presentation brings you from a basic understanding of the statutes, through some recent cases, to the proper way to exchange credit information with your fellow credit executive. The specific areas covered will include: understanding the antitrust statutes and avoiding antitrust pitfalls; step-by-step guidelines to the "meeting competition" defense; and credit exchanges in a group setting or at your office that will protect your company from antitrust violations.
Learn more and register for Credit Congress here.
The House Armed Services Committee reported out the Fiscal Year 2015 National Defense Authorization Act (NDAA) last week. Included in its nearly 400 pages are provisions of a construction bill supported by NACM which would benefit subcontractors and materials suppliers.
A version of the Security in Bonding Act (H.R. 776) was folded into the NDAA, an omnibus bill passed each year that details the Department of Defense's annual budget. Specifically, the Security in Bonding Act amends the Federal Acquisition Regulation (FAR) to essentially expand the licensing prerequisites that currently only apply to corporate sureties, to so-called individual sureties as well, requiring "non-corporate sureties to pledge specific and secure assets as required from others providing collateral to the federal government" and requiring that "those assets be held by a government entity to ensure payments can be made in the event they are needed," according to the bill's original sponsor Rep. Richard Hanna (R-NY).
"For our members, when extending credit to a general contractor, the presence of a bond from a so-called 'individual surety' can often be considered a financial red flag. This is because when a bond is posted via an individual surety, rather than a federally-assessed and approved corporate surety, it's often a sign that the general contractor could not meet certain underwriting requirements, and could therefore be in financial distress," said NACM, in a letter of support signed by National Chairman Chris Myers and President Robin Schauseil, CAE. "This makes it harder for our members and their companies to provide the goods and services that are necessary to the project's completion, and limits the flow of commercial credit that drives the nation's economy."
The Security in Bonding Act, after advancing through the Judiciary Committee, was one of several small business-oriented construction bills that were included in the NDAA last week, each of them previously reported out by the Small Business Committee. "Construction contracting accounts for about one in every six prime contract dollars awarded to small businesses," Hanna said, "so Iâ€™m pleased that the Small Business Committee and Armed Services Committee are working together to make sure federal construction policy supports small business and protects taxpayers."
The NDAA now moves to the full House of Representatives. NACM will monitor the bill and any amendments that might affect construction subcontractors and materials suppliers.
- Jacob Barron, CICP, NACM staff writer
National Fraud Survey Extended by Two Weeks to May 23
The Federal Reserve has extended the timeframe for its payment fraud study to May 23. Credit professionals are strongly encouraged by the Fed and NACM to take part in this important venture.
The National Association of Credit Management (NACM) released the latest edition of its Legislative Introduction and Issue Brief in conjunction with National Small Business Week. In addition to reiterating its suggested reforms to improve the Chapter 11 bankruptcy process to better fit the needs of commercial trade creditors and smaller companies, NACM's 2014 Issue Brief also includes an updated, expanded section on the important differences between consumer and commercial credit reporting and an all-new section detailing NACM's first-ever positions on reforming construction law in order to better enable small businesses to participate and grow through both public and private construction projects.
"During Small Business Week last year, NACM released the 'Commercial Credit Reporting: What Every Company Needs to Know' fact sheet, which was designed to give smaller companies the information they needed to manage and grow their company's own commercial credit profile, and how this type of credit differs from its consumer counterpart," said NACM President Robin Schauseil, CAE. "This year, NACM's Issue Brief charges lawmakers to recognize these same differences, so that when they attempt to enact legislation that regulates the vital resource of business credit information, they do so in such a way that doesn't limit the exchange of this data, which does nothing less than fuel the majority of business commerce."
"Recent efforts by legislators in Virginia and California to enact bills that extend consumer credit regulations to the commercial arena would ultimately end up making it harder for small businesses to grow through credit," said NACM National Chairman Chris Myers, president and CEO of Professional Alternatives LLC. "Rather than regulating commercial credit information, NACM believes that lawmakers should join us in educating small companies about how their commercial credit differs from their consumer credit and how they can grow their business by encouraging their suppliers to report their payment data to credit reporting agencies."
The 2014 Issue Brief also includes NACM's first-ever policy prescriptions that pertain to a specific industry, particularly construction. More than 50% of NACM's membership of commercial trade credit grantors is involved in the construction industry, and as such the brief urges Congress to make it easier, through a series of common sense reforms, for small businesses to participate in the construction industry and the federal procurement process. "Too often the risk of nonpayment keeps companies from providing goods and services to construction projects on credit. This risk is especially acute if the trade supplier is a small business," Schauseil said. "Congress can boost small business subcontractors and materials suppliers while increasing value to the American taxpayer by expanding the Miller Act's bond licensing requirements to individual, as opposed to corporate, sureties, and by extending the Act's payment protections to construction jobs financed through public-private partnerships, as NACM's 2014 Issue Brief recommends."
"These reforms would generally facilitate the extension of credit between businesses, the process of which NACM was founded to support and protect," Myers added. "That they stand to increase small business access to the federal procurement market and drive down costs for taxpayers makes these reforms, which have the support of other like-minded associations, a win-win situation that all lawmakers should support."
The full 2014 Issue Brief, in PDF format, can be downloaded here.
- Jacob Barron, CICP, NACM staff writer
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In an example that illustrates the US Bankruptcy Court in Delaware's reputation as the "rocket docket," one of the nationâ€™s largest sandwich-makers appears ready to emerge quickly from its Chapter 11 reorganization. The prepackaged Quiznos bankruptcy was approved in court after less than a half-hour of deliberation with no creditor objections. Quiznos will continue operating, now with about two-thirds less debt.
Elsewhere in the private sector, Energy Future Holdings' Chapter 11, filed on April 29, doesnâ€™t look like it will be resolved so quickly, which may actually work out to the benefit of unsecured creditors. The Texas-based traditional energy producer, seen as having insufficient assets to even satisfy the secured bondholders after being hurt over recent years by shale/natural gas-based competitors, was notified that a group of unsecured creditors has officially formed a committee. The creditors' committee hopes to improve the predicted recoupment of the nearly $10 billion owed to unsecured creditors and have some say in the reorganization process.
In the public sector, the widely-watched Detroit Chapter 9 municipal bankruptcy case cleared key hurdles last week, but also saw the reemergence of a powerful opponent. Information on the proposed Detroit restructuring package began being released to creditors following a deal in early May between the cash-strapped city and two police unions. Creditors have 60 days to vote following the official mail date of the information packets. The development sticks to the word of US Bankruptcy Judge Steven Rhodes, who vowed to set a fast timetable for resolution of the city's bankruptcy, the largest municipal case in US history. One party in the way though is the US government, which already has objected to Detroitâ€™s official bankruptcy plan. There has been dispute over how much money the city owes to the US Department of Housing and Urban Development (HUD), among other agencies.
Meanwhile, the complicated Stockton, CA Chapter 9 case continues to advance at a snail's pace. Perhaps the biggest issue, and one US Bankruptcy Judge Christopher Klein vowed to make a ruling on soon, is whether the California Public Employees' Retirement System (CalPERS) should be paid what it is owed in full while secured and unsecured creditors accept sizable losses and "cram-downs." CalPERS has been the most aggressive opponent to Stockton's bankruptcy plan, as success in the city could inspire others teetering on insolvency to short the state pension system through Chapter 9 filings. Only one major private sector creditor remains opposed to Stockton's plan, Franklin Templeton Investments. The company has argued in court and publicly that the city has offered far better deals to other creditors and wants more than the pennies on the dollar proposed for the tens of millions of dollars it is owed.
- Brian Shappell, CBA, CICP, NACM staff writer
NACM National Trade Credit Reportâ€”By NACM Members, for NACM Members
When it comes to providing businesses with factual, accurate and relevant information, the NACM National Trade Credit Report is the right choice. NACM National Trade Credit Reports include trade payment data, days beyond terms and fresh, robust and timely business information.
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Commercial bankruptcies continue to plummet on a year-over-year basis. According to the American Bankruptcy Institute (ABI) and data provided by Epiq Systems, Inc., total business filings in April 2014 decreased to 3,375, representing a 24% decline from the 4,413 commercial filings recorded in April 2013. Total commercial Chapter 11 filings also dipped, but only by 4% to 683 filings in April 2014, down from 711 Chapter 11 filings in the same period of 2013.
"Sustained low interest rates for business borrowers, sluggish consumer spending and the high costs associated with filing for bankruptcy have kept the filing rates below normal," said ABI Executive Director Samuel Gerdano. However, April's commercial filing total did represent a slight 2% increase from March 2014's business filing total of 3,321. The month-to-month increase was even more pronounced in Chapter 11 filings, which rose 20% in April when compared to the 568 filings registered in March.
April's jump in Chapter 11s could be seen in February's Credit Managers' Index, published by NACM, which tends to track ahead of other economic bellwethers and indicated a sharp deterioration in the filings for bankruptcies factor, signaling an increase in actual cases. Since then the factor has seen only minor decreases, which could suggest steady filing rates on a month-to-month basis, even as year-over-year bankruptcies continue to remain low.
The average nationwide per capita bankruptcy-filing rate in April was 3.09 total filings per 1,000 population, an increase from the 2.98 rate registered for the first quarter of the year. There were 2,932 average total filings per day in April 2014, a 13% decrease from the 3,359 total daily filings in April 2013. The states with the highest per capita filing rates last month were Tennessee (6.32), Alabama (5.22), Georgia (5.19), Illinois (5.00) and Utah (4.86).
- Jacob Barron, CICP, NACM staff writer
What Do These Jobs Have in Common?
Director of Financial Services at WESCO Distribution, Inc. in Pittsburgh, PA
Field Credit Manager at Sygma Network at Dublin, OH
Regional Credit Manager at Titan Florida LLC in Deerfield Beach, FL
Credit Manager - Contractor Direct at Bridgewell Resources LLC in Tigard, OR
Credit TRX Analyst at Sysco Memphis LLC in Memphis, TN
They are all listed right now, and many more, on NACM's Credit Career Centerâ€”your industry-specific job board offering employment connections for the business credit community.
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Standard & Poor's (S&P) earned a small victory in US District Court this week with the ruling that US officials must comply with the ratings agency's request to release documents tied to the government's civil lawsuit against them.
The ruling comes in a case in which the federal government filed a 2013 civil suit against S&P alleging fraud in its business practices and poor performance in rating companies and investments during the run-up to last decade's housing collapse and subsequent deep recession. S&P has been widely criticized for its failings during that period. It was not, however, the only group, public or private (including regulators) who were widely considered to be somewhat asleep at the wheel. The agency notably was the only major ratings agency to downgrade the US credit rating, which came during the summer of 2011 in a highly publicized chiding of the ineffectiveness and partisan gridlock of Congress and the Obama Administration. No similar action was taken against Moody's Investment Service or Fitch Ratings, S&P's biggest competitors.
S&P officials have continually alleged the civil suit is government payback for the rating drop and attached criticism. At least one high-ranking member of S&P's parent corporation, McGraw Hill Financials Inc., reportedly accused former Treasury Secretary Timothy Geithner of personally threatening government retaliation in a private conversation between the two not long after the downgrade. Geithner refuted the accusation.
- Brian Shappell, CBA, CICP NACM staff writer
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