eNews October 14, 2010

October 14, 2010

News Briefs

  1. SBA Blasted for Silence on 1099 Mandate
  2. "Savings Clause" Ruling Could Impact Credit Costs, Bears Monitoring
  3. Teleconference Duo Next Week Covers Preferences, Financial Analysis
  4. Jobs Down, Consumer Bankruptcies Up in Latest Reports
  5. Size of Record Mechanic's Lien Shrinking Amid Direct Subcontractor Settlements
  6. October Bankruptcy News Roundup: Visteon Philadelphia Newspapers, Extended Stay, MGM



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SBA Blasted for Silence on 1099 Mandate

Sen. Olympia Snowe (R-ME) recently blasted the Small Business Administration (SBA) for missing a chance to fight a new 1099 mandate that critics say will hurt the nation's smaller firms.

The U.S. Treasury Department and the Internal Revenue Service (IRS) had issued a Request for Comment on the new mandate that, starting in 2012, would require businesses to file a 1099 form for every vendor from whom they bought more than $600 in goods or services that year. The provision is expected to create a mountain of new paperwork that will fall hardest on small businesses, but the SBA's Office of Advocacy failed to submit comments on the measure before the comment period closed on September 29, 2010.

Interest in the 1099 mandate reached a fever pitch during debate over the newly-enacted Small Business Jobs and Credit Act. An amendment introduced by Sen. Mike Johanns (R-NE) would've repealed the mandate, which was originally passed as part of the Patient Protection and Affordable Care Act. However, the amendment was voted down in the Senate and the bill was passed with the provision intact.

"Repealing this onerous provision has been a top priority for the entire small business community; but regrettably, not only did Congress fail to repeal it as part of the Small Business Jobs Act signed into law last week, that bill actually expanded its scope and increased penalties for failure to collect and remit this information," said Snowe, who also sent a letter to Dr. Winslow Sargeant, chief counsel for advocacy, asking him to provide a specific plan for how the Office of Advocacy will mitigate any unwarranted impacts on smaller firms.

"The practical effect of this measure will mean that millions of businesses will have to send billions of new information reporting forms to the IRS and other businesses," Snowe added. "The fact that the SBA Office of Advocacy—the government's sole watchdog for small business—had nothing to formally say about this burdensome mandate is troubling, and it has led me to question whether the independence of that office is threatened."

As previously reported in NACM's eNews, the provision was passed in the Affordable Care Act as a way to generate revenue to offset that bill's cost. The 1099 mandate remains unpopular on both sides of the aisle, but there have been few, if any, credible suggestions for how to replace the billions in revenue that would be lost if the provision were repealed.

The White House has expressed support for an amended proposal that would exclude businesses with fewer than 25 employees and raise the threshold from $600 to $5,000.

Jacob Barron, NACM staff writer

NACM's Credit Real-Time Blog: The Latest in Commercial Credit

Check the Credit Real-Time blog for on-site coverage of the Urban Land Institute's 2010 Fall Meeting and Expo in Washington, D.C. Expert presenters and panelists will discuss various opportunities and pitfalls facing those operating in the commercial real estate market. There will be an additional focus at the conference on topics such as the rate of recovery for the overall economy and its impact on real estate, demographic changes, trends and the buzz-worthy movement of green and sustainable commercial construction. Check www.nacm.org for coverage tomorrow, Oct. 15, as well as the Oct. 21 edition of eNews.

"Savings Clause" Ruling Could Impact Credit Costs, Bears Monitoring

A panel of judges at the recent "Views from the Bench" conference at Georgetown University Law Center said a 2009 case involving a high-end ski lodge has set off a "firestorm" of discussion in the credit world. But, while one frequent NACM contributor notes the appeals process is worthy of watching for developments, he doesn't believe there will be more than a tangential impact.

A panel including U.S. Bankruptcy Court Judges Hon. Allan Gropper and Hon. Stuart Bernstein, both of the Southern District of New York, noted the issue of "savings clauses" has some up in arms that the cost of borrowing could skyrocket following a Florida court's decision. The case in question is Yellowstone Mountain Club LLC and Official Committee of Unsecured Creditors of TOUSA v. Citicorp North America (known as the TOUSA case). The fraudulent transfer and lender liability claims-related case revolved around an ill-conceived joint venture into the high-end housing market near a ski destination right before the real estate crash. The judge in TOUSA ruled against the savings clause because the party (Conveying Subsidiaries) involved in the joint venture with the primary owner (Yellowstone Mountain Club) was insolvent before the massive refinancing transaction and received no value from it—hence, accompanying liabilities were not enforceable.

In addition, the judge in the case found savings clauses unenforceable in general because, as noted in materials prepared for the panel for the event hosted by the American Bankruptcy Institute, "with multiple savings clauses for multiple obligors, it is utterly impossible to determine the obligations that result from the operation of any particular savings clause...as a matter of contract law, 'an inherently' indefinite contract term is unenforceable."

While the judges fretted a likely increase in borrowing costs, Bruce Nathan Esq., of Lowenstien Sandler PC, told NACM he believes it is much more of a bank issue than a trades issue and that its impact should not be too direct or significant for most small businesses. He characterized the matter as an argument over an onerous provision based on banks trying to protect themselves from fraudulent conveyance charges.

"There's always reason for concern if credit is more expensive, but I don't think it will have that much of a bearing on trade credit. Trades don't generally have those clauses in our guarantees," said Nathan. He added that, tangentially, marginal customers with bank lines based on guarantees from affiliate entities would be most likely to run the risk of a bank charge increase in the fallout of the decision. "It only affects us to the extent we take from a guaranteed entity. That's always a risk, but that's a risk we all already know about it."

Brian Shappell, NACM staff writer

Credit Word's Contest Deadline Approaching

There's only two weeks left to submit your anecdotal credit stories for NACM's Credit Words Contest. Earn cash and Roadmap points if you're a winner and Roadmap points if we publish your story. Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It's not a perfect world either. You can tell us about an unexpected turn in what should've been an easy task, or even a story of failure that will serve to help other credit professionals in the future. The possibilities are endless!

Submission deadline is November 1, 2010. Read the contest rules and get additional details in the September/October issue of Business Credit, or by clicking here.

Teleconference Duo Next Week Covers Preferences, Financial Analysis

Next week, NACM will offer a duo of teleconference programs focusing on two especially valuable topics: the Bankruptcy Code's preference statutes and the use of a customer's financial statements.

Leading off is "Preferences," scheduled for October 18 at 3:00pm EST and led by popular NACM presenter Deborah Thorne, Esq., of Barnes and Thornburg, LLP. Thorne will use her first-hand experience in one of the nation's most talked-about bankruptcy cases to illuminate recent changes in the application of preference law from district to district.

"My session is going to discuss the most recent issues on preference defense coming out of the Delphi case," said Thorne. "I am one of the attorneys defending clients who were served with complaints two and a half years after the statute of limitations ran out, and five years after the alleged preference payments were made." Delphi seems to be challenging its debtors with its demands, and creditors across the nation may be affected by how these issues unfold.

Thorne will also offer an update on preference defenses and "discuss the differences creditors will find as they attempt to defend preferences around the country in different bankruptcy courts." Not all courts agree on how these important defenses work, so where a customer files could affect how well a creditor can protect their company in a case. Credit professionals will need to know how they can keep their companies safe from legal vulnerabilities, and Thorne's teleconference will offer attendees all they need to know to make this possible. To learn more about this program, or to register, click here.

Two days after Thorne's presentation, Michael Dennis, CBF, of Quote to Cash Solutions, will lead credit professionals through the ins-and-outs of financial statements with his teleconference, "The Use and Abuse of Customer Financial Statement Analysis, Including Ratio Analysis," set for 3:00pm EST on October 20.

"Customer financial statement analysis and financial ratio analysis are powerful tools," said Dennis. "If used properly, these tools can help credit professionals limit credit risk by understanding a customer's financial health." Indeed, now is the time when creditors need to know the most about their customers' ability to pay, and financial statements are the easiest and most thorough way to accomplish this. "Knowing a customer's financial condition can help credit professionals avoid the two most serious problems facing any credit department: the possibility of payment default and the risk of serious payment delinquency."

Dennis will examine each of the three standard financial reports—the balance sheet, the income statement and the statement of cash flows—and leave attendees with the information they need to make better decisions about how much credit to extend and to which applicants.

"Trade creditors need to know that a customer has the ability to pay its short-term and intermediate-term liabilities," he added. "The best source of this information is the customer's own financial statements."

To learn more about Dennis' teleconference, or to register, click here.

Jacob Barron, NACM staff writer

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Jobs Down, Consumer Bankruptcies Up in Latest Reports

The economy lost 95,000 nonfarm jobs in September, leaving the unemployment rate unchanged at a politically-untenable 9.6%. Government employment also declined sharply, losing 159,000 positions, which includes a drop in the number of temporary Census jobs and jobs in local government. Private sector payroll employment continued to edge up modestly and gained 64,000 jobs last month.

Simultaneously, and intuitively, consumer bankruptcy filings edged upward in September, as 130,329 petitions were filed, marking a 3.3% increase from the August 2010 total of 127,028 filings. The bigger story with bankruptcy numbers, however, was the jump in year-over-year measurements. According to the American Bankruptcy Institute (ABI) and the National Bankruptcy Research Center (NBKRC), consumer filings during the first nine months of 2010 was 1,165,172, an 11% increase over the 1,046,449 total consumer filings during the same period in 2009.

The highest filing rates remain concentrated in the Southeast and Southwest, most notably in Nevada, which has more than double the national filing rate, along with Georgia, California, Utah and Tennessee. Chapter 7 filings continue to be the most prevalent among consumers, and only 30% of filers used the Chapter 13 rehabilitation process rather than the typical Chapter 7 liquidation.

Consumer filings for the first three quarters of 2010 represent the highest total since 2005, when Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), causing a sudden, drastic drop in filing figures. "While the 2005 bankruptcy overhaul law aimed to reduce filings, overall consumer debt and continued financial stress have led to consumer bankruptcies climbing back to pre-BAPCPA levels," said ABI Executive Director Samuel Gerdano. "We expect that there will be nearly 1.6 million new bankruptcy filings by year end."

To alleviate some of the aforementioned financial stress, Americans have recently taken to part-time and temporary jobs en masse. The number of people employed part-time for economic reasons rose by 612,000 in September, bringing the total to 9.5 million. Over the past two months, the number of these workers has increased by 943,000.

Jacob Barron, NACM staff writer

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Size of Record Mechanic's Lien Shrinking Amid Direct Subcontractor Settlements

The monumentally expensive dispute between the developer and general contractor of the Las Vegas Strip-based CityCenter doesn't appear to be going anywhere soon. However, the price tag may be primed to shrink through to the 2010 holiday season.

The luxurious, mixed-use property's developer MGM Resorts International noted in a Securities & Exchange Commission filing earlier this month that the size of the historically large $492 million mechanic's lien filed by contracting outfit Perini Building was trimmed to $424 million, and falling. The size of the mechanic's lien decreased because MGM started paying subcontractors directly, partially at the behest of local lawmakers, so they wouldn't be financially ruined amid the casino/resort developer's spat with Perini.

MGM officials maintained its long-held stance that the company will aggressively pursue direct settlements with the subs in attempts to complete all deals by year's end, possibly even before Thanksgiving. MGM did not confirm its estimates for how much it will pay out to said trades. Previously, it was reported that MGM had paid, or all but finalized payment terms with about one-third of the 233 first-tier subcontractors who worked on the mixed-use project.

Subcontractors, already reeling financially from recession conditions that hit Las Vegas as hard as perhaps any other U.S. city, had publicly pined for payments on outstanding bills prior to the lien's filing this spring. The casino/resort developer eventually began the seemingly unprecedented move to pay subcontractors directly despite the legal battle.

Perini filed the lien alleging that MGM abruptly stopped paying for work already completed earlier this year, made thousands of change orders on the project's design well after an agreed-upon deadline and was trying to buy time because of its ongoing financial struggles. Perini said nearly $400 million of its mechanic's lien filing represented what was owed to subcontractors. Prior to beginning the direct payments, MGM countered with allegations that Perini failed to present MGM with a final bill before filing the record mechanic's lien and botched the construction of the Harmon Hotel portion of the project so badly that it needed to be reduced by more than 20 floors from its original design.

Brian Shappell, NACM staff writer

MLBS Offers Complete Lien and Bond Services and More

NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.

MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.

MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program, and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.

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

October Bankruptcy News Roundup: Visteon Philadelphia Newspapers, Extended Stay, MGM

Visteon: Key cog auto-parts manufacturer Visteon has emerged from its bankruptcy filing with plenty of hope and drive. The former division of Ford worked out critical flaws in its capital structure and could find itself in an almost desirable spot, for the first time in many years, as the U.S. automotive industry appears to be making a significant comeback led by its former parent. Additionally, Visteon officials note it has expansive exporting opportunity within markets in Asia and especially Brazil, which has a quickly emerging middle class with an appetite for a wide range of consumer products, especially imported automobiles.

Philadelphia Newspapers: Following two separate auctions won by a group of investors spearheaded by Angelo, Gordon & Co., the Philadelphia Inquirer and Daily News have emerged from bankruptcy. A U.S. Bankruptcy Court judge approved the sale and the exit strategy proposed by the new group, operating as Philadelphia Media Networks. The latest bid was made on Sept. 23 and is worth about $105 million, well below the $139 million April agreement with the lenders. That fell apart because a local Teamsters Union representing drivers balked at renegotiating pension benefits. It's been rumored the investors could make a run at some or all of Tribune's assets, which include the Baltimore Sun and the Los Angeles Times, as well. The Tribune's bankruptcy filing has been arduous, to say the least, amid battles between various creditor groups. Things got a bit worse this week when the New York Times outlined embarrassing allegations of a frat-house-like, harassment-filled and fiscally inept atmosphere brought to Tribune newspapers after Sam Zell's highly-leveraged buyout of the key media company a couple of years ago.

Extended Stay: The hotel chain has exited Chapter 11 bankruptcy protection following the successful buyout of its assets/operations by private equity firm Centerbridge Partners LP. The preliminary deal, worth just under $4 billion for nearly 700 properties in North America, was outlined in July. The first order of business for new ownership appears to be significant renovation projects at its most important properties.

Metro-Goldwyn-Mayer: The California-based movie studio has proposed a pre-packaged bankruptcy plan that includes new stewardship by Spyglass Entertainment. Like many other famously disastrous leveraged buyouts, the MGM deal has floundered since the 2005 purchase by a private group that included Providence Equity Partners, Sony Corp. and Comcast Corp. Secured lenders face an Oct. 22nd deadline to cast a vote on the plan. MGM is the studio in control of the James Bond and Lord of the Rings franchises.

Brian Shappell, NACM staff writer

To view past eNews issues or to visit the NACM Archives, click here.



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