February 16, 2012

News Briefs

  1. Another Solar Energy Company Files for Chapter 11
  2. U.S. Breaks Export Records in 2011
  3. Manufacturing Surges on the Rebirth of U.S. Auto
  4. President's Budget Good, Bad or Ugly for Small Businesses, Depending on Who You Ask
  5. More Ratings Woes in the EU
  6. U.S., EU Partnership Offers Boost to Organic Agriculture Exporting


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Another Solar Energy Company Files for Chapter 11

Yet another alternative/renewable energy firm has sought bankruptcy protection following a period of quiet that was preceded in late 2011 by a slew of high-profile Chapter 11 filings at such companies.

On Tuesday, Michigan-based Energy Conversion Devices (ECD) voluntarily filed a petition for Chapter 11 protection in the U.S. Bankruptcy Court for the Eastern District of Michigan. ECD, through its subsidiary United Solar Ovonic (USO), manufactured and sold photovoltaic products used largely in commercial rooftop solar panels. The company plans to sell USO, among other assets, as part of its plan to reorganize. President/CEO Julian Hawkins believes a "strong and sustainable" market still remains in the troubled solar products industry, though companies face stiff international competition and domestic market saturation.

Ed Altman, PhD, a New York University professor and developer of the vaunted Altman Z-Score that predicts companies' bankruptcy risk, intimated that ECD's slip into bankruptcy, or at least its timing, seems somewhat surprising given where it rated in the Z-Score, especially compared to some others in the industry.

"Energy Conversion Devices didn't necessarily look like a real disaster given a score of 1.49, though we also have to look at the trending—if it's going down over a year, you have to be on guard," said Altman, who will present a session at NACM's 2012 Credit Congress in Grapevine, TX. "It's not nearly as bad as some others [in the industry]. Others are definitely in distress zone." Under the Z-Score model, originally unveiled by Altman in 1968, any score under 1.8 is considered in the "distress zone." The Street recently used the Z-Score to analyze a slew of solar manufacturers, and several fit the distressed bill. Among them were Ascent Solar (-7.3) and DayStar Technologies (-16.5).

The latest version of the bankruptcy predictive measure is called the Altman Z-Score+, which was unveiled in the form of a SmartPhone/iPhone application and includes new predictors of the one-to-10-year likelihood of default and a bond-rating equivalent to match the score. Altman told NACM that ECD's 1.49 would likely translate into a B- to CCC+ bond rating range. Some others mentioned would be significantly closer to a D rating, indicating a high likelihood of default.

ECD represents the latest in a series of filings by overleveraged alternative energy product and component manufacturers, which was predicted in Business Credit last spring. Producers have alleged that Asian competitors have been offered subsidies by their governments and can no longer compete because these competitors are undercutting them so drastically on pricing and costs. Others note a major factor is oversaturation in the U.S. solar energy/products manufacturing industry, which saw rapid and unsustainable interest during the waning days of the last economic boom. Prior to ECD, Stirling Energy Systems Inc. was the most recent to file, but it went straight to Chapter 7 (liquidation) in the U.S. Bankruptcy Court in Delaware. It followed previous filings by SpectraWatt Inc. and the controversial Solyndra, a California firm with ties to the Obama Administration still being investigated federally for fraudulent business practices. Months before, BP solar operation halted its Maryland-based solar activities in favor of relocation abroad.

For more information on the new Altman Z-Score+ application, visit www.altmanzscoreplus.com/.

Brian Shappell, NACM staff writer

Father of Z-Score Bankruptcy Prediction Model Scheduled to Lead Session at 2012 Credit Congress

The Z-Score has long been used as a predictor for bankruptcy, and Credit Congress will feature its creator.

Ed Altman, PhD will present "The Evolution and Importance of Corporate Distress Prediction and Financial Health Models and Their Implications" on June 13, one of several sessions covering bankruptcy and dealing with troubled companies.

Join us at this year's Credit Congress, June 10-13 in Grapevine, TX.

Click here to get more information about the Altman and other sessions. But hurry, the early bird registration deadline is March 2!

U.S. Breaks Export Records in 2011

U.S. exports of goods and services hit landmark, after landmark, after landmark in 2011. It seems appropriate then, that statistics released last week confirm last year as the biggest ever for U.S. companies selling abroad.

According to 2011 trade numbers released by the Commerce Department's Census Bureau and Bureau of Economic Analysis, U.S. goods and services exports in 2011 were up by 14.5% or $265.5 billion from the same period in 2010, reaching a record annual total of $2.1 trillion. Most individual merchandise categories also experienced record export levels in 2011.

The Commerce Department's most recent release also included figures for December 2011, which showed an increase of 0.7% in exports of goods and services from November's numbers. December's exports of services also set a single-month record of $51.7 billion.

All in all, over the last 12 months, exports have been growing at an annualized rate of 15.6% when compared to 2009, a pace greater than the 15% required to double exports by the end of 2014, a deadline set by President Barack Obama's National Export Initiative. "U.S. exports posted a record $2.1 trillion in 2011, helping to fuel the positive momentum we have seen in the U.S. economy as a whole. Given the growth over the past two years, we remain on track to realize the president's National Export Initiative goal of doubling U.S. exports by the end of 2014," said Commerce Secretary John Bryson. "The private sector has recorded 23 consecutive months of job growth, creating 3.7 million jobs, and U.S. manufacturers have added 404,000 American jobs in the last two years, the strongest growth since the 1990s."

Export-Import Bank (Ex-Im Bank) Chairman Fred Hochberg also cheered the news and again pledged the bank's resources to the continued success of international trade. "U.S. exports play an essential role in our economic recovery, and it's vital that we provide American business owners with the resources they need to compete in a 21st century global economy," he said. "Ex-Im Bank remains committed to reaching new customers and to helping level the playing field for our nation's exporters."

The major export markets with the largest annualized increase in U.S. goods purchases were Turkey (43.6%), Panama (38.6%), Honduras (35.0%), Argentina (33.2%), Hong Kong (31.7%), Chile (30.3%), Peru (30.0%), Brazil (28.3%), South Africa (28.0%) and Guatemala (26.6%).

"We expect the growth in U.S. exports to continue," said Michael Rubey, 2012 Credit Congress presenter and managing director of J.P. Morgan Treasury Services. "More customers are looking to either increase their sales in overseas markets or, if not there already, begin international sales. The U.S. government programs to support exports have contributed to this momentum as evidenced by the Ex-Im Bank having a record year last year."

To learn more about best practices in exporting and how to grow your company through international trade, consider attending the FCIB International Credit Executives (I.C.E.) Conference in Chicago in May, or visit www.fcibglobal.com.

Jacob Barron, CICP, NACM staff writer

FCIB'S New York International Profit Summit Roundtable

March 14, 2012

Discover how credit management industry leaders have achieved closer cooperation between departments to better manage working capital, increase cash flow, minimize borrowing and increase profits.

Join our panel of experts at FCIB's Annual Profit Summit Roundtable at the Princeton Club in New York on March 14 from 12-3pm to dissect your peers' "best practices" and recent improvements.

Learn effective, applicable techniques that can help you and your company:

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Click here for more details and to register.

Manufacturing Surges on the Rebirth of U.S. Auto

U.S. government statistics unveiled Wednesday showed manufacturing built off of December's impressive gains with another uptick. And much of the credit goes to the automotive industry, which looks healthier than it has in years heading into the core of 2012.

Though overall industrial production was unchanged in January, manufacturing itself performed well yet again. A big part of that stems from the 6.8% gain posted by the index specifically tracking motor vehicles and parts manufacturing. That after the December result was upwardly revised to +3.8%. As loud as any time since the U.S. government bailed out two of the "Big Three" domestic automakers, the industry and those who rely on it have declared as robustly as ever in the newest statistics that the auto rebound is on.

Jim Gillette, an auto industry analyst with IHS automotive, noted his company's research projects domestic auto manufacturing numbers to hit 15.6 million by 2014, a conservative estimate and a world away from the near 10 million in production during the downturn in 2009. Part of that can be traced to the doubling of U.S. auto exports, up to about 1.4 million at last check, in less than a decade. As such, "suppliers are making money now," said Gillette.

"When Toyota and Honda both fell down a bit [safety problems, Japan-related supply-line disruptions], it really opened the doors for other automakers here," Gillette told NACM. "To a large extent, the domestics are doing well because their product is so much better than it was previously. Ford just started launching so much new, stunning product. GM, too, has some great new product out there. Even Chrysler is a nice surprise as, before the Great Recession, some of us thought they were going to go away. They have come back with a vengeance."

Additionally, Gillette believes parts suppliers and automakers are well positioned moving forward, not just because of streamlining business models during the recession, but because people who have put off car purchases can only continue that frugality for so long.

"Cars and trucks on the road are as old as they've ever been," he said. "A lot of people out there have 10-year-old vehicles. The average is almost 11 years. We're seeing a lot of people are getting out there to the lots right now."

Brian Shappell, NACM staff writer

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President's Budget Good, Bad or Ugly for Small Businesses, Depending on Who You Ask

To some, it's a responsible, carefully designed set of investments and reforms, a paragon of tough, but sensible fiscal management in trying economic times. To others, it's an empty, dangerous political gimmick; a scandalous doctrine of job-killing tax increases that will plunge America into the dark ages.

Opinions on the president's recently submitted budget for fiscal year 2013 were always going to be extreme, but the truth, as usual, lies somewhere in the middle. Really, the budget is such a large document and contains so many multitudes that, in most cases, it can be good, bad and ugly all at the same time.

As the nation continues to look to small businesses to build on a still-nascent job recovery, opinions on how President Barack Obama's budget treated the all-important sector were especially diverse. "The president's budget for the Small Business Administration (SBA) reaffirms his pledge to help support the engines of the economy and be ready to help businesses and home owners in the aftermath of disasters," said Senator Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship. "This is a very strong budget, in tough budgetary times."

On the other hand, Landrieu's House equivalent, Small Business Committee Chairman Sam Graves (R-MO), seemingly found nothing in the budget worth praising. "American small businesses are facing an unprecedented number of barriers to growing their companies, and today's budget adds to their problems by fueling the cloud of debt that lingers over the nation," he said. "This budget is bad for small businesses because it further strains the economy by worsening the national debt and punishing business owners by raising their taxes. Despite the obvious need to address our nation's unsustainable debt and despite the president's promise to cut the deficit in half, this budget actually increases it even more, marking the fourth straight year of deficits exceeding $1 trillion."

The House Ways and Means Committee, chaired by Dave Camp (R-MI), was even more blunt in its distaste, issuing an all-caps statement that read "Bottom line—tax hikes don't add up to the jobs American people need."

While Democrats have been generally supportive of the budget, many of them are already walking sideways on certain issues, most notably the fact that the budget will make only minor reductions to the deficit. The White House itself predicts that the annual deficit will fall from $1.33 trillion in 2012 to $901 billion in 2013, which Republicans and many moderate Democrats agree isn't nearly enough. The GOP, however, continues to struggle with an ideology that demands deficit reduction while practically outlawing tax increases.

Specific provisions of the budget would extend a 100% first-year depreciation deduction for certain property, expand the payroll tax cut, provide a temporary 10% tax credit for new jobs and wage increases, provide tax incentives for locating jobs and business activity in the U.S., provide a new "Manufacturing Communities" tax credit and permanently eliminate capital gains tax on investments in qualified small business stock. As far as tax increases are concerned, the budget would allow the Bush 2001 and 2003 tax cuts to expire, restore the estate tax to 2009 levels, limit tax expenditures for the most affluent, eliminate the carried interest loophole for hedge fund managers and other similar investment service providers, and eliminate special depreciation rules for purchases of corporate jets and other general aviation passenger aircraft.

The budget that will eventually be enacted will undoubtedly look little like the president's current proposal. Nonetheless, the first shot of Barack Obama's reelection campaign has officially been fired.

Jacob Barron, CICP, NACM staff writer

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Please join us for two new MLBS Workshops—Liens & Bonds: Managing the Process from a National Perspective and/or UCC Filings and the Best Possible Position to Get Paid. Both will be held on Wednesday, March 21, 2012, 8:00am-12:30pm and/or 1:00-3:15pm, Los Angeles, California.

For more information on NACM's MLBS and these workshops, click here.

More Ratings Woes in the EU

Worried about the continuing spread of problems from the high-debt PIIGS nations, Moody's Investment Services downgraded the sovereign credit ratings of six European nations—Italy, Malta, Portugal, Slovakia, Slovenia and Spain (which fell multiple steps)—on Monday. Additionally, Moody's wagged a proverbial finger at France, Austria and the United Kingdom, which currently are holders of the prestigious 'Aaa' rating level, by publicly moving their respective outlooks from stable to negative.

As Moody's and its counterparts at Fitch and Standard & Poor's have alluded to in the past, the agency pointed to "uncertainty over the euro area's prospects for institutional reform of its fiscal and economic framework" as well as "increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programmes and the structural reforms that are needed to promote competitiveness." Because of both—and, one could argue, because of the agency's own increasing spotlight/scrutiny on debt levels in the EU—Moody's is fearful of the impact on market confidence and the negative cycle that could ensue.

Markets fell slightly on the news, though the announcement generated more of a yawn than the panic and/or debate such a move would have in years past. Economists, including NACM's Chris Kuehl, PhD and The Conference Board's Ken Goldstein, have made past comments to the tunes of "it didn't tell markets anything they didn't already know" or slights on the ratings agency's own crisis in credibility it suffered after poor analysis and borderline conflicts of interest in business practices during the much discussed run-up to the global economic downturn a few years back. Still, even with less of a cache, the downgrades are likely to have some negative impact on the short-term credit prospects for the nations involved, even if the extent is yet to be established.

Brian Shappell, NACM staff writer

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U.S., EU Partnership Offers Boost to Organic Agriculture Exporting

A recent agreement between the United States and the European Union could provide a boost to the already growing organic agriculture industry.

Beginning on June 1, organic products certified in either the U.S. or the EU may be sold as such in either region. The partnership between the world's two largest organic producers is designed to establish a strong foundation from which to promote organic agriculture, and benefit the industry while supporting jobs and businesses on a global scale.

"This partnership connects organic farmers and companies on both sides of the Atlantic with a wide range of new market opportunities," said U.S Deputy Agriculture Secretary Kathleen Merrigan, who signed the formal letters creating the partnership in Nuremberg yesterday morning. "It is a win for the American economy and President Barack Obama's jobs strategy. This partnership will open new markets for American farmers and ranchers, create more opportunities for small businesses and result in good jobs for Americans who package, ship and market organic products. "

Previously, growers and companies wanting to trade products on both sides of the Atlantic needed two separate certifications representing two separate standards, meaning a double set of fees, inspections and paperwork. The newly-minted partnership will eliminate these barriers, making it easier for all producers, especially small and medium-sized ones, to take advantage of American and European markets.

"On the one hand, organic farmers and food producers will benefit from easier access, with less bureaucracy and less costs, to both the U.S. and the EU markets, strengthening the competitiveness of this sector. In addition, it improves transparency on organic standards, and enhances consumers' confidence and recognition of our organic food and products," stated the EU Commissioner responsible for agriculture and rural development, Dacian CioloĹź. "This partnership marks an important step, taking EU-U.S. agricultural trade relations to a new level of cooperation."

The organics sector in the U.S. and EU is valued at more than $50 billion combined and, according to the office of the U.S. Trade Representative, is rising every year.

Jacob Barron, CICP, NACM staff writer

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