May 11, 2010
Please Note: There will be no eNews issued next week, May 18, 2010, due to NACM's 114th Annual Credit Congress in Las Vegas, NV. eNews will resume on Tuesday, May 25, 2010.
This could be it...maybe.
After a series of delays that have stretched across two years, the Federal Trade Commission's (FTC) deadline for compliance with the "Red Flags" Rules is only three weeks away. On June 1, 2010, the FTC will start to enforce these regulations that require creditors with covered accounts to adopt a written program to identify, detect and respond to the risk of identity theft.
The "Red Flags" Rules have bedeviled B2B creditors ever since their inception because it still hasn't been made explicitly clear that the rules apply to this entire class of creditors. Nonetheless, compliance is good business, and attendees at this year's Credit Congress will get one last chance to make sure they're protected from any potential FTC enforcement actions, as well as many other legal pitfalls, in this year's "Hot & Emerging Legal Issues" session, scheduled for the morning of Wednesday, May 19.
Bruce Nathan, Esq. of Lowenstein Sandler PC and Wanda Borges, Esq. of Borges & Associates, LLC will lead attendees through a session uniquely tailored to address the current legal status of the "Red Flags" Rules as well as the state of bankruptcy and other late-breaking B2B legal issues.
"The first and foremost reason [to attend] is the ‘Red Flags' Rules. They may start to enforce on June 1 and, assuming it starts, this is the last opportunity to come in and hear a discussion on if the rules apply and how people should be complying," said Nathan, noting that the FTC has a flair for last minute enforcement delays when it comes to the "Red Flags" Rules.
Other topics on the agenda include a discussion of current trends in bankruptcy litigation, as well as the implications of a number of cases decided only recently. "We're going to be focusing on the new Delco Oil decision and its impact on trade creditors," said Nathan. "We're also going to cover the significant litigation that's going on now with 503(b)(9)." Section 503(b)(9) of the Bankruptcy Code provides sellers of goods with an administrative priority claim for any goods received by the debtor 20 days prior to filing. "It's a simple statute," said Nathan, "but every word is being litigated."
Nathan also noted that this year's session is especially timely due to a proliferation in preference actions that has arrived right on schedule. "There's been an explosion of preference actions, which you tend to see two years after filing because that's when the statute of limitations ends," he noted. "Starting in 2008 bankruptcies exploded, and so it's not unusual to expect preferences to start exploding as well."
Jacob Barron, NACM staff writer
Missing Credit Congress? Keep an Eye on NACM's Blog!
If you're not able to attend NACM's Credit Congress this year, be sure to stay tuned to NACM's Credit Real-Time Blog and NACM's Twitter page for updates! Staff writers Jacob Barron and Brian Shappell will be offering reports at the close of each day, as well as intermittent, up-to-the-minute updates on Twitter live from the Expo floor and throughout the course of the event.
A new Federal Reserve study finds that credit availability from U.S. financial institutions remained largely unchanged during the past quarter. Fed officials are trying to spin the findings as a positive sign that conditions are stabilizing and setting the stage for improvements in the not-too-distant future.
The Fed's April 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices found most banks kept their lending standards unchanged overall during the quarter. Nearly 86% of banks did not change standards for large- and middle-market firms (those with annual sales exceeding $50 million) and 96.3% made no change for small businesses. Meanwhile, the survey found a small percentage of banks actually began easing standards for commercial and industrial loans, marking the first time an increased number of firms eased their standards in two consecutive quarters since 2006. Large banks, however, were found to be more likely to ease some of their lending policies.
However, a majority of domestic banks are carrying higher standards for credit applicants as well as tougher terms for approving small business credit card accounts, both for new and existing customers. Additionally, commercial real estate continues to take a beating. The Fed noted a "significant number" of domestic banks tightened standards on commercial real estate loans, though not as much as in the previous study conducted in January. Some estimate a commercial real estate recovery may be delayed into 2012.
During the Chicago Fed's annual Conference on Bank Structure and Competition, Fed Chairman Ben Bernanke admitted credit availability remains limited, but promised there were reasons for optimism.
"Economic activity has continued to strengthen, and senior loan officers tell us that, at least outside of commercial real estate, they anticipate a modest reduction in their troubled loans over the coming year," said Bernanke. "As a result, bank attitudes toward lending may be shifting."
Bernanke noted that officials at the Fed's 12 regional districts are in the midst of an outreach program designed to discuss credit industry problems occurring on the ground and possible solutions to improve matters, especially for small businesses.
"Our message is a simple one: Institutions should strive to meet the needs of creditworthy borrowers, and the supervisory agencies should do all they can to help, not hinder those efforts," said Bernanke. "We are also supporting sensible efforts to work with troubled borrowers to bring them back into good standing."
Brian Shappell, NACM staff writer
Wanted: NACM Member News
Have you recently been honored with an industry award, gotten recognized for your community service or for improving company processes, or promoted within the credit department?
How have you been reducing business risk and keeping current with the trends? Forward your news to firstname.lastname@example.org by May 25th so we can share it in July's Business Credit magazine.
Last year's highly controversial stimulus bill has finally begun to reach a broader part of the construction sector.
In a recent conference call, Ken Simonson, chief economist of the Associated General Contractors of America (AGC), noted that while the bill's effects were initially only felt in the form of a sudden boom in transportation projects, things have finally started to reach other corners of construction. "The stimulus, and its estimated $135 billion in infrastructure investment, was successful in jumpstarting the transportation component," said Simonson, "but too many projects got bogged down in red tape."
"Starting this spring, things have started to change," said Simonson. "The impacts are now being felt in a much broader section of the industry."
A lingering criticism of the stimulus bill, officially dubbed the American Recovery and Reinvestment Act of 2009 (ARRA), however, has been that its effects are expected to dry up well before a recovery is in full swing. "The stimulus has stemmed the [job] losses, but the bad news is that the stimulus is temporary while the downturn is expected to be protracted," he said, adding that a recovery in the sector wasn't expected until 2011 at the earliest. Simonson urged lawmakers to enact more measures that were geared toward consistent, long-term investment rather than more intermittent bursts in spending.
Also participating on the call were a number of contractors from across the country, many of whom echoed Simonson's opinions on the ARRA while outlining the specific problems they now face as an industry. "We have a lot of contractors that are searching for anything they can to stay busy," said Ted Aadland, CEO & president of Aadland Evans Constructors in Portland, OR. "There's been a huge increase in the amount of bidders on each project. We had an average of three to seven bidders, but now we're seeing up to 18 bidders on projects. And we've seen pricing going down from 15-30% on the jobs as they become more and more competitive."
Things were quite similar on the other side of the country, according to Mark Hall, president of Hall Construction in Howell, NJ. "It's not unlikely to see 20-30 bidders on every project," he noted. "Jobs are not only at cost but below cost. For example, the Atlantic City school district put a high school out to bid. It was a $40 million project; the bids came in at $26.2 million. We bid at cost and we were the ninth bidder."
Hall added however that since the field is so competitive now, there's never been a better time for more federal investment. "This is the best time for the federal government to put work on the street because they could get the best value," he said.
Jacob Barron, NACM staff writer
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With the 2005 changes to the Bankruptcy Code, notably to 20 day administrative claims, trade creditors found themselves taking a decided backseat to bondholders. Despite the proven ability to counter this, many creditors simply are waiting too long to make a run at superior returns and unnecessarily finding themselves getting the short shrift.
The topic will be covered thoroughly by Scott Friedman during the May 24 NACM teleconference, "Capital Structure Issues to Consider When a Customer Files Chapter 11." Friedman, principal at financial services and risk mitigation firm Scott Friedman Consulting Inc., said moving up in the pecking order of Chapter 11 distribution lies largely in organizing with other creditors early and negotiating a bigger, better piece of the bankruptcy pie.
"This is an important topic because, oftentimes, when creditors are looking at a reorganization and there are bonds in place and they feel they're on par with bonds in the recovery because they're unsecured, a lot of time the bonds have the structural seniority to a trade creditor," said Friedman. "If they recognize these structural considerations early, they can often negotiate and get a seat at the table early so they don't get overrun and railroaded by bondholders."
However, this often isn't happening despite substantial success stories from trade creditors. Essentially, Friedman believes trade creditors are "leaving too much on the table" because they're either asleep at the switch or not predicting what type of troubles their debtor is facing.
"Trade creditors are missing too many opportunities right now," he said. "Trade creditors often won't fight or organize until a plan has been filed. That's when they realize they're at a disadvantage. A lot of the times, the case has quickly moved so far down the line they have no bargaining power, and it's difficult for them to step in late."
A prime example of early organization leading to trade creditor-friendly results came in the Chapter 11 restructuring of Winn-Dixie, a Florida-based retail food chain that was a part of the S&P (Standard and Poor's) 500 during the year prior to its filing. The bankruptcy proceedings, which Friedman plans to discuss during the upcoming teleconference, involved bonds that were unsecured but had some operating subsidiary guarantees. Still, staying ahead of the negotiations helped trade creditors "substantially increase their actual recovery."
For more information, click here.
Brian Shappell, NACM staff writer
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Senate officials have recently debated a new tax on banks, proposed by President Barack Obama, that would recoup losses from the Troubled Asset Relief Program (TARP).
TARP was created during the financial crisis as a means to stabilize the economy, and the statute that created it dictated that the president would propose a plan in 2013 to repay taxpayers for the program's losses. Three years ahead of schedule, Obama proposed the Financial Crisis Responsibility Fee, which, despite its name, would be an excise tax rather than a standard fee.
While nearly everyone agrees that the TARP losses should be repaid, a schism exists between lawmakers on how the revenue generated by the tax should be spent. "I completely agree that taxpayers should be paid back every penny of TARP losses. Any losses that result from TARP will increase the deficit, which has ballooned under President Obama," said Sen. Chuck Grassley (R-IA). "Therefore, to pay back taxpayers for any TARP losses, any money raised from the TARP tax would have to be used to pay down the deficit. Let me repeat that, any money raised from a TARP tax would have to be used to pay down the deficit in order to pay back taxpayers."
Grassley and his Republican colleagues fear that such a tax will be levied and its revenue used only for more government spending. Concerns also remain on how the tax would affect bank lending habits at a time when credit is just starting to become more readily available. "American taxpayers deserve to have each and every dollar spent in the TARP program paid back, and financial institutions need to bear responsibility for the burden they created," said Sen. Max Baucus (D-MT). "TARP helped to keep the financial sector afloat and there's a decent argument that the financial sector received more benefit from TARP than just the dollars that TARP lent them. As we consider a bank fee, we need to understand the best way to design it, so that it's fair and achieves its purpose, and we need to understand who should pay the tax."
"Small businesses suffered when credit dried up during the financial crisis, so we want to make sure that banks do not harm small businesses when we try to make the banks pay back American taxpayers," he added.
The Senate Finance Committee, chaired by Baucus, has already held two hearings on the proposed tax, featuring testimony from Special Inspector General for TARP, Neil Barofsky, U.S. Treasury Secretary Timothy Geithner and other industry stakeholders. Baucus noted that he planned to host a third, as-yet unscheduled hearing to continue the committee's consideration of the tax.
Jacob Barron, NACM staff writer
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As BP continues to wrestle with containing an oil spill in the Gulf of Mexico, the company faces a likely negative mark from at least one of the three major credit ratings agencies. But that might just be the tip of the iceberg for a company that could be characterized as cavalier on maintenance and safety issues in its operations in recent years.
Moody's Investors Service is the first of the ratings big three to chime in following BPs disastrous, ongoing oil spill stemming from an April 20 explosion that killed 11 oil rig workers. Moody's revised its credit outlook for Aa1 senior unsecured BP ratings to negative, from stable.
"Moody's action reflects the considerable uncertainty associated with the financial liabilities and clean-up costs that BP may incur as a result of the oil spill in the Gulf of Mexico," Moody's said in a May 5 statement. "It remains impossible at this stage to assess the full extent of the costs and business impact of this accident on BP's results."
NACM Economic Advisor Chris Kuehl, Ph.D. of Armada Corporate Intelligence said the long-term impact of the spill should not hurt the U.S. economy in a sense of drastic price increases and supply concerns or even the oil industry itself—that is, unless the incident helps permanently steer lawmakers far away from offshore drilling.
"You're certainly going to see a lot more scrutiny involved," said Kuehl. "But, at this moment, this is pretty much a one-company disaster." He added that even most local industries, including the shrimping and tourism sectors, won't largely be crushed because of the areas the spill affected most.
However, BP itself may find its future efforts to expand into new markets substantially stymied because the latest debacle will denigrate its negotiating strength relative to virtually all of its large competitors. That's not to mention what some already considered an ongoing spotty operational record, thanks to problems with leaking pipelines, as well as equipment and/or maintenance in areas including Canada, Alaska and Nigeria. Additionally, Kuehl noted BP has largely been "booted" from Ecuador and Venezuela, though some of that was inspired by geopolitical reasons beyond the London-based company's control.
"If this was a one-off situation and they never had a problem before, that's one thing," he said of the Gulf spill. "But this is just the latest. It hasn't been a well-run company for a long time." Kuehl added that characterizing BP as a company operating in a cavalier manner on maintenance and safety "would be a very polite way of putting it."
Brian Shappell, NACM staff writer
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