November 8, 2012
For the first time in its brief history, the overall health of the economy wasn't the most popular response to NACM's annual survey of the most pressing concerns for credit professionals looking ahead to the new year.
When asked "Looking forward to 2013, what are your biggest concerns as a credit professional?" the most popular response was "slow payment, delinquencies and general customer creditworthiness," with 21.4% of participants choosing that as one of their three responses. "The state and future of the economy" came in second, with 19%.
Despite the fact that the economy may seem less frightening this year, a number of other issues have risen to the fore. A larger number of respondents chose "large customers dictating unfavorable terms" than in previous years, and "lack of information on potential customers," a response new to this year's survey, was another major concern weighing on the minds of credit professionals.
"It is very difficult to get even the most basic company info in developing countries, including China," said one participant. "The European Union and United States recessions are beginning to drag the rest of the world economies with it. Even once stable countries are pulling back and that is very worrisome, especially when you have loads on the water for a month or so."
"Suppliers want shorter payment terms and, if not granted, taking longer to pay," said one respondent. "Consistent collection efforts keep days sales outstanding in line, but we're working harder for the same funds today."
Fraud wasn't one of the most popular answers, garnering about only 5% of the vote, but according to some participants, concerns about fraud and information security among both sellers and buyers have depressed the availability of information on potential customers. "My biggest concern is the increase in new fraud techniques that have developed since the recession started," said one respondent. "As a credit manager who is constantly under pressure to move as fast as I can to approve or deny a new customer, I feel I need to be able to dig deeper into a customer than current sources allow. It seems customers are more reluctant to provide information mainly due to fear of fraud from providing their confidential information when asked."
The January edition of Business Credit will contain more analysis on the survey. November's survey is now live and asks about where you get your information from NACM. Click here to participate today.
- Jacob Barron, CICP, NACM staff writer
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The U.S. District Court for the Central District of Illinois has reversed a Uniform Commercial Code (UCC) decision from earlier this year holding that UCC filings needed to appear under a "legal" name, opening the door for loophole-based litigation. It's a reversal that Gregory Powelson, director of NACM's Secured Transaction Services, which is launching a UCC filing service this month, characterized simply as "getting it right."
The U.S. Bankruptcy Court for the same district found in the case of Miller v. State Bank of Arthur that a UCC filing there was not perfected, and thus not enforceable. In short, as the debtor argued, the secured lender who signed off on financial statements did so as "Bennie Miller" instead of what was on his birth certificate and, thus, his legal name, "Ben Miller." Basically, it boiled down to the allowed use of a common name versus the "legal" or correct name.
Deborah Thorne, Esq. of Barnes & Thornburg LLP noted the reversal held that the use of the name Bennie Miller was not seriously misleading and that having his driver's license and social security card, among other key documents in the name of Bennie Miller instead of Ben Miller helped in the case. She said it was a matter of the court noting common sense, but said lenders should use this as a reminder of the importance of carefully reviewing records for any discrepancies that can lead to unnecessary and unwanted legal battles in UCC filings and otherwise.
Powelson said the reversal was massively important from an industry perspective. "One odd decision can throw a state's UCC into turmoil; fortunately, it didn't happen in this case," he noted. "As with anything concerning the UCC, the key is to be conservative.
- Brian Shappell, CBA, NACM staff writer
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Commercial bankruptcy filings last month totaled 4,780, representing a 19% increase from the 4,029 filings in September 2012, according to data provided by Epiq Systems, Inc. to the American Bankruptcy Institute (ABI). Commercial Chapter 11 filings also increased in October as the 704 filings represented a less impressive 3% increase over the 681 filings in September.
While the sudden jump surprised many analysts, bankruptcies have continued to trend downward, and this single-month increase shouldn't create panic among credit professionals and their companies.
"You can't really look at September versus October and say that this makes a trend," said Bruce Nathan, Esq., partner at Lowenstein Sandler PC. "You look at it from the year before and the total filings are still down about 16%. The bottom line is that people are just not filing. Until we normalize, you're going to see this reduced trend, and part of it is that Chapter 11 is very expensive now. You don't see Chapter 11 as a reorganization vehicle, you see it as a vehicle for the 363 process," he added, referring to Section 363 of the Bankruptcy Code which allows a debtor to sell its assets outside of a reorganization plan.
Filings in the future might continue to increase, but not necessarily as a result of the health of businesses or the economy. "You may see an uptick in bankruptcies as a result of what happened with Sandy," said Nathan, referring to the hurricane that recently devastated parts of the northeast. "It's not going to help them, but the bottom line is that I don't think this figure is a new trend. This is consistent with what's been going on throughout the year."
Elsewhere in bankruptcy, total filings, both consumer and commercial, were up 16% for the month of October, hitting 101,278. This still marked a 9% decrease from the 111,533 filings registered in October 2011. The 4,780 total commercial filings in October 2012 were down 16% from their 2011 equivalents, and the 704 Chapter 11s represented a 23% decrease from October 2011's total of 913.
"Despite this uptick, total bankruptcy filings for the year remain on pace for about 1.2 million new cases, the lowest total since before the financial crisis in 2008," said ABI Executive Director Samuel Gerdano. "Sustained low interest rates and weak consumer spending by households deleveraging are helping to restrain bankruptcy filing rates."
- Jacob Barron, CICP, NACM staff writer
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Perhaps the biggest obstacle to the bankruptcy plan confirmation involving the most controversial U.S. company in the solar energy business was cleared Monday.
The Internal Revenue Service's (IRS')appeal asking for a stay in the Solyndra Chapter 11 bankruptcy plan, which was confirmed late last month in the U.S. Bankruptcy Court for the Third Circuit (Delaware), was denied in the same court Monday. The IRS' attempt to delay the confirmed plan hinged on the argument that Solyndra's newer bondholders would use the losses for an unfair, borderline illegal, tax gain. U.S. Bankruptcy Judge Mary Walrath reiterated this week that the IRS failed to make a case that such a strategy was a driving force behind the bankruptcy, that the bondholders' tax "strategy" would be successful and/or that bondholders were doing anything illegal. Though not the only formal objector to the plan, the IRS was certainly the most significant.
As part of the plan, Solyndra's assets will be liquidated while its parent company, 360 Solar Holdings, Inc., will reemerge as restructured and still in business. Most of more than $500 million in grants approved by the Obama Administration will not be paid back. Creditors also, unsurprisingly, will take a massive haircut on Solyndra's collapse.
The timing of the victory, just one day before President Barack Obama captured a second term in office, is somewhat coincidental given the backing of Solyndra by key members of Obama's fundraising inner circle. The president even made an appearance at its California headquarters to praise the company during his first term. GOP candidate Mitt Romney tried repeatedly to seize on this as a means of embarrassing the president during his unsuccessful campaign, but the topic had little traction perhaps in part because Solyndra was located in a state that had virtually no chance of going to Republicans in the election. On the flip side, the Obama Administration's continued airing of Romney's infamous "Let Detroit Go Bankrupt" op-ed regarding automotive insolvency restructuring plans and the perceptions raised by the headline, though not necessarily the context of the article, may have paid dividends in Ohio. The critically important state, which is heavily reliant on the auto industry, eventually did go to Obama Tuesday night, clearing the way for his successful reelection run more than perhaps any other state victory.
- Brian Shappell, CBA, NACM staff writer
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It's over. After countless months of ruthless campaigning and relentless advertisements, the U.S. 2012 election cycle has come to its climactic end. But if businesses and credit professionals were hoping for a sudden shift to more solid ground, they might be disappointed. "Essentially, nothing has changed," said NACM Economist Chris Kuehl, PhD in the November 7 issue of the Business Intelligence Brief.
The truth is that despite certain shifts in social and economic policies in various states, President Barack Obama will continue to serve another four years, the House will remain under Republican control and the Senate will remain under Democratic control. As fevered as the prognostications were, control of the government will remain in essentially the same position as it has been for the last two years. And the issues facing the United States economy remain as potent as ever.
"The number one issue now is the impending fiscal cliff, and the latest election outcome could be either good news or very bad news. Congress now has a little less than two months to figure out what to do with the issue or they will essentially plunge the U.S. back into a recession that could last for a solid year," said Kuehl. "The betting is that they do something, but the details are very murky."
Indeed, the current Congress' track record provides little in the way of confidence. "Not since the 'do nothing' Congress of the late 1940s has there been less activity," Kuehl noted. "It now appears that this very same setup will dominate for another two years at least, and that is perhaps the biggest economic concern."
The most efficient electoral scenario, historically speaking, has been when the presidency is held by one party and both chambers of Congress are held by the other. Splitting the difference "forces both parties to the middle and makes the moderate wings more influential," according to Kuehl. But despite President Obama's comment to Russian President Vladimir Putin that he would have "more flexibility" during his second term being considered a major gaffe on the campaign trail, the reality is that Obama can maneuver a bit more easily now that he doesn't have to worry about selling his accomplishments four years from now. He doesn't have to worry about holding as tightly to the priorities of his liberal base so much, because he's statutorily prevented from running again. This could allow him to work more effectively with a House of Representatives that's as conservative as it's ever been.
Still, much of the economy's future may be well beyond the reach of the nation's elected officials. "The key issue in the year to come may be the decisions of the Federal Reserve, and that is out of the hands of the chief executive," said Kuehl.
- Jacob Barron, CICP, NACM staff writer
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Panama's rise in prominence continues to catch the eyes of the business and investment worlds. The latest to take note, and take action, was Moody's Investment Services.
NACM has noted previously that Panama's commitment to massively expand its well-known and oft-used canal, as well as its continued work to break down inter-governmental trade barriers, has helped in positioning the small Latin American nation as increasingly prominent. Moody's Investment Services listed the same among many reasons why it raised the government's credit rating Monday.
"Panama's economy has grown at an average rate of 7.3% during the past 10 years, the highest rate of growth in Latin America and among the highest in the world. Despite weakening external conditions, Panama continued to show remarkable economic dynamism in the first half of 2012," Moody's said. "Though recent growth rates are not sustainable, medium-term growth prospects remain strong thanks to the expansion of the Panama Canal, the Martinelli administration's ambitious infrastructure investment plans and the recent ratification of the free trade agreement by the U.S. Congress." Moody's added that newfound commitment by Panamanian officials toward gold and copper mining also make the nation attractive from a credit and investment point of view.
This comes less than two months on the heels of the Commerce Department's comments that, among major export markets, no nation has seen a larger rise in the purchase of U.S. goods in recent years. The 36.3% increase since 2009 (through September) bested the second faster riser (Turkey) by nearly eight percentage points. As noted here previously, key to watch in the coming months and years will be something else already on market-watchers' radar: whether the government there can manage growth responsibly and avoid creating troubling fiscal imbalances for the medium and long term. It's something that not-too-distant neighbor Brazil, despite its hot status in recent years, has failed to master.
- Brian Shappell, CBA, NACM staff writer
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