eNews July 24, 2014

July 24, 2014

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News Briefs

  1. Study: US Biggest Story, Worldwide, in Gas Market Outlook
  2. Shale 'Revolution' and the Impact on Mechanic's Liens
  3. Lawyers Split on Chapter 14 Approach to Winding Down Too-Big-to-Fail Financial Institutions
  4. Global Industrial Production Wanes
  5. Federal Reserve Beige Book: Clean Sweep, as Growth Expands in All 12 Districts

 

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Study: US Biggest Story, Worldwide, in Gas Market Outlook

One of the primary takeaways in an internationally focused credit insurance firm's new study on gas markets is that the US shale gas "revolution" is nothing short of a phenomenon and should continue to be a force through most of the decade.

"Gas Market Outlook: July 2014" is Atradius' first analysis of the topic since last summer, and its view on the United States as a gas player for at least the medium term is bullish, to say the least. Atradius gushed at the US's favorable technical, financial and entrepreneurial circumstances, noting that a convergence of such factors has led to a 50% reduction in gas imports from a boom specifically in shale gas:

"We will see that the share of gas in the US energy mix has risen significantly, at the expense of oil and coal. This highlights that the US gas market has fundamentally changed…These developments are likely to last into 2018, as gas prices are expected to recover with the economic upswing, ongoing consumption growth in the power sector and environmental requirements driving more gas-fired power plants. The US will become gas self-sufficient."

The rosy forecast is not without some caution. The regulatory and environmental situation in the US will have to remain supportive, or even improve, for the surge in natural gas to expand or even sustain peak levels reached in the medium term beyond 2018 and through 2035. "Risks to this outlook are arguably balanced. On the one hand, the generally favourable [sic] regulatory and operating environment for unconventional gas could change on the back of a shift in public opinion, such as potential concerns about drinking water, ground water and small earthquakes,"the report noted. "States have a large degree of freedom to set regulations, and indeed there is a wide variety to be detected, with some states such as New Jersey and New York (temporarily) banning hydraulic fracturing."

From a global viewpoint, the Gas Market Outlook also found the following key takeaways:

  • "There is no such thing as a global gas market…there are only regional markets [US, EU, Asia] connected by trade."
  • Price divergence between regions is significant. Asian prices should remain stable, but EU and US pricing could gradually climb.
  • European energy policy has reduced the position of gas in the marketplace.
  • Asian demand is not being met by production, boosting potential as a US-export destination.

- Brian Shappell, CBA, CICP, NACM staff writer

The CMI Survey is Open. Complete It Now!

The Credit Managers' Index (CMI) survey is open until 5:00pm EST on Friday, July 25. Every time you participate, you are contributing to a leading economic indicator.

It only takes a minute, and we need you to make the CMI as accurate as possible. There is no math involved—you just have to indicate if something is better, the same or worse than the month before. Simple!

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Shale 'Revolution' and the Impact on Mechanic’s Liens

As noted by a growing number of sources, including the Atradius study detailed in the story above, natural gas, specifically shale gas, is booming in the United States like few other industries have in some time. But as people count on future money and positive trends, seemingly all growth areas have their bumps in the road, at best, and, at worst, watch bubbles burst spectacularly. There is little historic evidence to say there won’t be problems on some projects related to gas, specifically construction-related improvements that could affect service providers and materialmen. It begs the question: will mechanic's liens play a role in future line and well improvements?

"I certainly would not tell a client that it is not an option. I think there is an argument that you can, in fact, file a mechanic’s lien on such a project," said Kit Pettit, a senior associate with the Pennsylvania firm Bernstein-Burkley PC. "Yes, there is a certainly a lot of money in the industry right now and typically there is plenty of cash flow to pay vendors and contractors performing well. At the same time, there are a number of new entities or startups looking to get work. You may very well have companies that fail to perform properly. You may have companies that don’t know what they’re doing or perhaps expanded too quickly or don’t have employees with enough skill or training."

Mechanic's liens vary greatly from state to state, even among high-production states. For example, the lien laws of Pennsylvania seem a lot more vague than those of Texas or Oklahoma. As noted by Pettit, there still exists sparse case law available on the topic that is applicable to the current situation, in part because the boom conditions mean there have been few problems to date.

James Vogt, Esq., partner at Reynolds, Ridings, Vogt & McCart PLLC in Oklahoma, said he believes the mechanic's lien statutes already on the books in that state would prove helpful if invoked by materialmen and service providers. He recalled that a number of oil and gas liens were filed in Oklahoma during "the big bust" in natural gas in the 1980s, with some success.

Karen Hart, partner at Texas-based Bell Nunnally & Martin LLP, also pointed out that definitions within that state's mechanic's lien law appear clear enough to apply with some level of confidence. That is not to say the process is by any means easy and that such lien filings won't be fraught with challenges at the slightest hint of incorrect information. "The hardest part about perfecting oil and gas liens is identifying the well through an API number and who is in the contract chain," Hart said. "This is where a job sheet that is completed accurately on the front end can be so handy. It's also difficult identifying the lease and figuring out the legal description of the land and who owns it."

In short, though the money train seems to be rolling, it appears those dealing with projects related to natural/shale gas improvements would be best served to begin getting educated on the topic, or contact people who are.

- Brian Shappell, CBA, CICP, NACM staff writer

Business Credit—On the Go!

NACM members can now read Business Credit magazine on any mobile device or tablet! That’s right, any device. Because Business Credit is a benefit of membership, you’ll need to log in before viewing and reading it, but doing so gets you the credit and financial news and information you need as a business credit professional.

For more information and to get started, click here.

Lawyers Split on Chapter 14 Approach to Winding Down Too-Big-to-Fail Financial Institutions

Respondents to a recent poll conducted by the American Bankruptcy Institute (ABI) were divided over whether lawmakers should create a new chapter in the US Bankruptcy Code to reorganize too-big-to-fail financial institutions. An even 50% of respondents (24% "strongly" and "26% "somewhat”) believed that a new Chapter 14 should be created for such institutions, while 42% (33% "strongly" and 9% "somewhat") disagreed. The remaining 8% didn't know or had no opinion on the matter.

As noted in the July 17 edition of eNews, the House Judiciary Committee is attempting to establish a new means to unwind systemically-important financial institutions (SIFIs) that lie beyond the reach of federal regulators, or at least give the institution itself the legal tools it would need to properly reorganize on its own accord. The goal of any effort to create a mechanism to safely liquidate struggling SIFIs would be to maximize value while minimizing the impact on the American economy and on American taxpayers. Precisely how to achieve these goals is the subject of a great deal of debate in the legislature, and in legal circles.

The debate centers around Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created an "orderly liquidation authority" that would, in the instance of a SIFI's imminent failure, provide a process outside of bankruptcy court for quickly and efficiently liquidating the entity in question. Among legislative proposals seeking to address the issue differently is Senate Bill 1861, which would repeal Title II altogether and replace it with the aforementioned Chapter 14, excluding federal regulators altogether by creating a way for these institutions to reorganize within the court system.

- Jacob Barron, CICP, NACM staff writer

MLBS is Managed by Credit Professionals, for Credit Professionals

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For more information, call Chris Ring at 410-302-0767or visit www.nacmsts.com.

Global Industrial Production Wanes

The industrial numbers are not looking all that positive of late and this has many analysts convinced that the rest of this year will be far weaker than expected. The US has thus far avoided this decline, but that immunity is now being called into question as it has been amply demonstrated that the US is as dependent on the global economy as the rest of the world is dependent on the US.

The narrative for the US thus far this year has been that there will be substantial growth through the bulk of 2014 now that the bleak first quarter is in the past. That decline in the GDP has been attributed to the harsh winter and to the travails in the global economy and it was assumed that it was the former that mattered the most. Now it is not all that clear. If the status of the global economy emerges as the more dominant factor in that first quarter swoon, there will be many more worried faces as far as the rest of this year is concerned, as the data from Europe and parts of Asia don’t look all that promising.

The industrial production numbers from Europe have been a big disappointment. France has become the most worrisome economy in the region, as there seems to be no end to their freefall. The production numbers have tumbled by 1.7% since May and they are still mired in contraction territory as far as the PMI data is concerned. Italy had been showing some signs of improvement, but not this month as the production numbers fell by 1.2%. The Germans are still gaining, but at a much slower pace than in the past and few now believe that Germany can carry the rest of Europe any longer. Neither Italy nor France has been able to emulate the Germans when it comes to selling to the US or to Asia and that has become a major impediment to growth—especially in the face of continued budget issues.

At the same time that Europe is struggling, there are more issues in Japan. The latest production numbers have fallen here as well, making the Abenomics strategy that much harder to push. It was assumed that the flood of cash from the Japanese government and from the Bank of Japan would find its way to the industrial community and that Japan would be able to resume its role as a major Asian exporter. The only good news that has emerged from Asia of late has been that China is in recovery as far as production is concerned, but that is always something of a mixed bag. It is good that China is demanding imports from nations that are traditional markets for the US, but this also means that Chinese companies are competing more aggressively with those from the US and Europe.

The data on global manufacturing is weaker than it was expected to be at this point in the year. The assumption at the start of 2014 was that recovery was under way in the US as well as in Europe. The headlines were all about the “turn” and recovery, but now that conversation seems premature—at least in Europe and Japan. The slow growth in these regions will drag others down to one degree or another.

Source: Armada Corporate Intelligence

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Federal Reserve Beige Book: Clean Sweep, as Growth Expands in All 12 Districts

Overall, cross-sector economic growth expanded at an improved level over the last six weeks compared to the previous period in all 12 reporting districts of the Federal Reserve, erasing some of its concerns that a dip in the economy had more to do with harsh, early-year weather patterns.

The Fed's Beige Book economic roundup was as positive as any recent analysis of the US economic situation, including its own previous report. The Beige Book showed an improved, "moderate" pace of growth in New York, Chicago, Minneapolis, Dallas and San Francisco. Remaining districts showed "modest expansion," but nearly every district characterized their outlooks for the second half of 2014 as quite optimistic.

Improvements were notable in manufacturing, agricultural, labor markets and commercial borrowing. Meanwhile, credit quality was seen as improving or stable in all but one district (San Francisco). Real estate showed more mixed results, according to Fed analysts.

While there are still doubters and negative reports being issued (see above story), some believe the increasingly positive picture being painted about the US economic rebound could lead to increased pressure for the Fed to accelerate the pace of rolling back stimulus efforts and raising the target for the federal funds rate from the historically low point of under 0.25%.

To review the latest Federal Reserve Beige Book report, click here.

- Brian Shappell, CBA, CICP, NACM staff writer

Here's Just a Sample of the Jobs Listed Right Now on NACM's Credit Career Center!

Collections Specialist-National Accounts at Kaman Industrial Technologies in Fort Wayne, IN
Credit Manager at Big R Bridge in Greeley, CO
B2B Collections Specialist at Dayton Superior Corporation in Elk Grove Village, IL
Credit and Collections Supervisor at STX, LLC in Baltimore, MD

View all current job postings.

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