April 30, 2015

eNews

News Briefs

  1. NACM's Credit Managers' Index Shows Signs of Improvement in April
  2. NACM’s Industries to Watch: For-Profit Colleges
  3. FCIB Summit: Global Companies Increasingly Turning to Bank Payment Obligation
  4. CEO Confidence Dips, Leading Economic Index Growth Rate Inches Forward
  5. February’s Home Prices Show Widespread Gains

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NACM's Credit Managers' Index Shows Signs of Improvement in April

April results for NACM's Credit Managers' Index mark an improvement from the sentiment one month ago. In addition, newly revised statistics from the February and March editions of NACM's CMI illustrate a less negative picture than preliminary numbers indicated a few short weeks ago.

The revised 53.4 reading in March rose to 53.9 in April, according to data, which will be unveiled by NACM Friday morning. Still, there are troubling issues within the unfavorable factors categories. "This is a month with some mixed messages," said NACM Economist Chris Kuehl, Ph.D. "This [month] is good, but it is also evident that the last couple of months did some damage, as there are weak numbers throughout the unfavorable categories. It would appear that a collapsed energy sector, winter worries and trepidation regarding dollar values and the interest rate weighed pretty heavily."

April's statistics show small gains in areas like sales, new credit applications and dollar collections compared with revised numbers of March, which were decidedly better than preliminary data showed. Kuehl indicates that the May CMI likely will be a bit of a bellwether to determine if most of the index's recent roller coaster behavior will cease with potentially stabilizing energy prices and improved weather.

Much of the CMI data from April remained relatively stable compared with revised March statistics. The category of sales moved up slightly from 58.4 to 59.1. New credit applications data improved a little, from 56.6 to 58.6. Dollar collections rose from 57.6 to 58.8. Overall the index of favorable factors improved to 59.8.

There is continued distress in the unfavorable categories, which fell slightly to 50, dividing line between expansion and contraction. Accounts placed for collection stayed at 49.8, but that is as weak as it has been in a year. The disputes category has continued to slip, with 47.2 representing its lowest point in the last three years. Dollar amount beyond terms improved slightly, but remains mired in the contraction zone at 48.8, though that's significantly better than the previous month. The dollar amount of customer deductions category fell deeper into contraction, down to 47.4 from March's 48.7. Filings for bankruptcies remained firmly in expansion territory despite weakening to 54.6 in March from 55.1.

Kuehl noted that revisions to the CMI in March and February changed the results of only a few of the categories, with the most dramatic update coming in the amount of credit extended category. Those categories have returned to the 60s, and the latest numbers mark the second consecutive month of gains, a first since June through August of 2014.

"Upon reviewing the data and assessing some additional numbers, it seems that there was not quite the drama originally noted," Kuehl said.

- NACM staff

Visit NACM's website Friday morning for full report for the April CMI. All CMI archives may be viewed on NACM's website by clicking the preceding hotlinks.

 

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NACM's Industries to Watch: For-Profit Colleges

Corinthian Colleges Inc. starkly and dramatically closed operations this week at the more than two dozen for-profit colleges under its umbrella. The now-insolvent company was racked by federal government investigations based on alleged fraudulent behavior and a growing chorus of analysts and creditors criticizing its business approach or the quality of its services. Corinthian is just one example of the many for-profit college providers feeling similar heat. As such, for-profit colleges should be considered among Industries to Watch for creditors at any company supplying products or services to them.

Corinthian was one of the largest for-profit colleges in the United States when the federal government launched an investigation into its practices in 2014. The investigation came on the heels of reports from previous years raising questions about tactics such as predatory lending, hard-selling and mischaracterization of data, including job placement rates. It came two years after Lon Morris, a private nonprofit junior college, filed for bankruptcy, which inspired the U.S. Department of Education to quickly revoke its ability to receive proceeds for federal student financial aid, according to Sal Tajuddin, managing director at Capstone Advisory Group. The government's legislative reaction to building concerns over lending tactics, potential fraud and operational feasibility will render it nearly impossible for any for-profit school that flirts with insolvency to survive, Tajuddin wrote in the latest edition of NACM's Business Credit magazine.

"If an institution files for bankruptcy, even Chapter 11, it will be barred from receiving any federal aid funding," Tajuddin stated, citing the latest federal legislative changes. "Given that for-profit institutions derive approximately 80% of their revenue from federal student aid programs, the loss of this revenue and these students would render the institution not [financially] viable as a going concern."

Corinthian's collapse, an inability to realistically pursue bankruptcy and poor publicity from the mounting investigations into various for-profit colleges comprise a formidable trio of obstacles for players in the industry flirting with the margins. Vendors supplying these institutions with products or services would be best served by scrutinizing whether they appear financially stable in the long term and if existing credit terms need to be altered.

- Brian Shappell, CBA, CICP, NACM managing editor

Tajuddin's article, "Restructuring Difficult When Debtor a For-Profit Learning Institution," is available in the June issue of Business Credit. To view it online, click here and, after logging in as an NACM or FCIB member, scroll to page 26.

 

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FCIB Summit: Global Companies Increasingly Turning to Bank Payment Obligation

Technological platforms are becoming a more prevalent resource within the credit industry as ways to help boost a company's supply chain and optimize working capital. As more corporations see partners and competitors using them with positive results, acceptance will only increase. And the interest in using such tools is already huge, according to panelists at FCIB's recent International Credit and Risk Management Summit and Expo in Madrid.

"Electronic documents are here to stay, and they are now becoming a reality. As more corporations see that, more will want to try," said Ashley Skaanild, head of trade finances for EssDocs in London and panelist during FCIB's "E-Commerce Driven Strategies to Support Working Capital Management" panel. "They see great value in speeding up trade ... and with the corporations, come the banks."

Skaanild, along with four other summit panelists, acknowledged that the use of letters of credit [L/Cs] are flattening, while open accounts are on the rise. "Intense competition for buyers has forced sellers to offer more favorable transaction terms, often by forgoing lengthy and expensive letters of credit in favor of open account transactions," their research indicates. Panelist Angela Koll, vice president and product manager of international business for Commerzbank in Frankfurt, Germany, suggested that one thing creditors can offer within this landscape is a product called Bank Payment Obligation (BPO).

BPO requires a bank to guarantee that payment will be made to the seller after data on an open account transaction are electronically matched. This is a newer digital process that provides similar protection to a L/C, but it is done electronically instead of on paper. "It's trying to take paper out of the process as much as possible," said panelist Andre Casterman, global head of banking for trade and supply chain solutions for SWIFT in Brussels. He added that it's the first effective new instrument in trade finance in decades.

Proponents of BPO believe this type of solution provides many benefits to corporations including more integrated services, interconnectivity among key players, faster turn-around time and the ability to be converted to paper if required.

"The way our platform works—we don't change the business process at all," said Skaanild. "But what used to take 11 to 15 days, now only takes two to three."

- Jennifer Lehman, NACM marketing and communication associate  

For more coverage of FCIB’s latest Summit in Madrid and other international business credit topics, visit NACM’s Credit Real-Time blog and watch for the release of the June issue of Business Credit magazine.

 

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CEO Confidence Dips, Leading Economic Index Growth Rate Inches Forward

CEOs view current economic conditions more positively than they did at the end of 2014, but their assessment of conditions in their own industries worsened, according to the recent Conference Board and PricewaterhouseCooper Measure of CEO Confidence survey.

Of those business leaders surveyed, about 55% asserted conditions were better than six months ago, up from 52%. However, only 35% reported improvement in their industries, down from 43%. Overall, the index fell three points in first quarter 2015 compared with fourth quarter 2014, as it dropped from 60 to 57—a reading of more than 50 points reflects more positive than negative responses.

Their short-term outlook was less optimistic, given that 38% of them anticipate economic conditions will improve over the next six months compared with 49% in the previous quarter. A narrower gap emerged within expectations for their own industries, however, with 34% anticipating an improvement compared with 36% in fourth quarter 2014.

Globally, CEOs were more positive about current economic conditions in Japan, Europe and China, but overall sentiment remains negative. Views about the United States and India remained upbeat, while their assessment of Brazil had grown more pessimistic.

"Optimism among CEOs retreated," said Lynn Franco, director of Economic Indicators at The Conference Board. "While expectations for growth prospects in the U.S. remained positive, they were less favorable than last quarter. Meanwhile, expectations for Europe, China and Brazil continued to decline."

The first-quarter survey also asks business leaders to estimate the price of a barrel of oil six and 12 months forward. "Regarding the price of oil, more than half of CEOs estimate the price will be between $55 and $74 a barrel six months from now; two-thirds estimate that will be the price a year from now," Franco said. Only 40% expect prices between $40 to $54 six months out; and 15%, a year forward. None of the business leaders foresaw prices declining to $40 or less, while a few did expect oil to exceed $75.

The Conference Board also recently released its Leading Economic Index (LEI) for the U.S., which increased 0.2% in March to 121.4, following a 0.1% increase in February. "Although the leading economic index still points to a moderate expansion in economic activity, its slowing growth rate over recent months suggests weaker growth may be ahead," said Ataman Ozyildirim, economist at The Conference Board. "Building permits was the weakest component this month, but average working hours and manufacturing new orders have also slowed the LEI's growth over the last six months."

- Diana Mota, NACM associate editor

 

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February's Home Prices Show Widespread Gains

U.S. home prices continued to rise and outpace inflation and wage gains, according to the most recent S&P (Standard & Poor's)/Case-Shiller U.S. National Home Price Index.

The index, which covers the nation's nine Census divisions, recorded a 4.2% annual gain in February, weaker than January's 4.4% increase. Though failing to rival the hot pace of recovery found during parts of 2013 and 2014, the February statistics continued a run of growth that "has seen 34 consecutive months with positive year-over-year gains," said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.

Year-over-year, February growth outpaced that of January. The 10-city composite gained 4.8%, up from 4.3% the previous month, and the 20-city composite grew 5%, compared with 4.5%. "All 20 cities have shown year-over-year gains every month since the end of 2012," Blitzer said.

Denver and San Francisco realized the highest year-over-year gains, as prices rose 10% and 9.8%, respectively. It was the first double-digit increase for Denver since August 2013. Of the 20 cities reported, 17 showed a higher pace of price increases in the year ended in February 2015, with San Francisco claiming the largest acceleration. Annual price increases for San Diego, Las Vegas and Portland, OR, slowed, however. "Only two cities—Denver and Dallas—have surpassed their housing boom peaks," Blitzer noted. "Nationally, prices are almost 10% below the high set in July 2006. If a complete recovery means new highs all around, we're not there yet."

Month-over-month, the index rebounded in February, as it inched up 0.1%. Both city composites saw their largest increases since July 2014, with Denver and San Francisco leading with 2% and 1.4%, respectively. Cleveland reported the largest drop (1%), followed by Las Vegas (0.3%) and Boston (0.2%).

A better picture of where home prices can be found in January 2000, "before the housing boom accelerated, and looking at real or inflation adjusted numbers," Blitzer said. Based on the index, "prices rose 66.8% before adjusting for inflation from January 2000 to February 2015. Adjusted for inflation, this is 27.9% or a 1.7% annual rate." Over the last 15 years, Los Angeles showed highest price gain with a 4.3% real annual rate; and Detroit, the lowest with a -3.6% real annual rate. "While nationally prices are recovering, new construction of single-family homes remains very weak despite low vacancy rates among both renters and owner-occupied homes," Blitzer said.

- Diana Mota, NACM associate editor

 

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