eNews Jul 26, 2012

July 26, 2012

News Briefs

  1. Plot Thickens in Interchange Fee Settlement Fight
  2. The Basics Are Critical When Dealing with Credit Insurance
  3. German Retail Sector Starting to Feel Deep Impact of Economic Changes
  4. Russia Set to Join WTO Next Month, Congress Continues Work on PNTR
  5. RoomStore Chapter 11 Filing Collapses into Liquidation
  6. Who is Up, Who is Down in Risk, Business Climate


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Plot Thickens in Interchange Fee Settlement Fight

The National Association of Convenience Stores (NACS) was the first to reject a proposed settlement in a case against Visa and MasterCard over credit card interchange fees. As time wears on, however, it looks like they won't be the last.

Most recently, the association has been joined by retail giants Walmart and Target in their opposition to the proposed settlement, for ostensibly the same reasons cited by NACS in its original complaint. "Target believes the proposed interchange fee settlement is bad for both retailers and consumers," said the company in a statement. "The proposed settlement would perpetuate a broken system, restrict retailers from any future legal action and offer no long-term relief for retailers or consumers. In addition, Target has no interest in surcharging guests who use credit and debit cards in order to allow Visa and MasterCard to continue charging unfair fees. We will continue to explore our options while working toward a solution that represents true reform."

NACS has held that the settlement, which has the support of the defendants as well as the court-appointed class counsel for the plaintiffs, fails to address the lack of transparency in the process by which Visa and MasterCard set these fees. "Not only does the proposed settlement fail to introduce competition and transparency into a clearly broken market, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces," said NACS Chairman Tom Robinson upon announcing NACS' rejection of the settlement earlier this month.

As a result of their opposition, and the fact that they currently stand alone among the 19 class action plaintiffs in rejecting the proposed settlement, lawyers representing the plaintiffs have petitioned the court to have NACS dropped as their client, arguing that they can't reconcile the interests of their other clients with NACS' "divergent objectives."

Responding to the news that other groups also opposed the settlement, NACS said that they expected many other class action plaintiffs to follow Walmart and Target's lead in the coming weeks. "It's a bad deal and the growing backlash against the terms of the proposed settlement that we are hearing from retailers confirms that this is far from a done deal," said NACS Senior Vice President of Government Relations Lyle Beckwith.

NACS also cautioned retailers to tread carefully in the coming weeks, as Beckwith suggested that they may receive unsolicited sales calls offering them a piece of the more than $6 billion in settlement funds in exchange for their support of the proposed agreement. "It wouldn't surprise me at all if retailers start getting calls," he noted. "We strongly recommend that retailers keep their options open before signing any agreements with third parties to obtain settlement funds."

- Jacob Barron, CICP, NACM staff writer

Stay tuned to NACM's blog and eNews for further updates.

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The Basics Are Critical When Dealing with Credit Insurance

The importance of using products such as credit insurance to protect investments when dealing in foreign countries continues to grow as companies look to markets outside of the usual suspects to make sales during the newest global economic malaise. As such, knowing and understanding the details of a credit insurance policy, if in use at your company, is of critical importance. So much so that it's shocking how often people forget the basics and leave their credit departments and companies exposed.

"You generally end up in a problem with a claim when you don't pay attention...And it happens a lot," Tom Corbett told NACM staff in a discussion after this week's Finance, Credit and International Business Association (FCIB) webinar "How to Read a Credit Insurance Policy."

Corbett, vice president of trade credit practice at Marsh Trade Credit, noted both during the webinar and in the subsequent conversation that credit professionals often forget to do things like call their insurance carrier or broker to have them add new products that weren't carried at the time the policy was created, new currencies contained in invoices or when doing business with a new customer for the first time. It all must be on a policy, period. Additionally, because each credit insurance carrier uses different technical language that sometimes differs greatly, it's important to read each policy thoroughly. Otherwise, trouble could arise, such as the carrier not paying out on an important claim, Corbett noted.

"You don't want to be reading your policy for the first time when meeting with a potential client," he said. "It isn't the solution when the customer is in bankruptcy court. It isn't the solution when the customer's phone is disconnected."

Knowledge retainage is also an issue. The details of what's in company policies and plans, how they work, or the fact that they exist at all, should not be left in the hands of one person. What if they abruptly retire, die or get fired? Corbett recalled such an anecdote. "The guy who retired was the only one who managed the policy; others didn't know how to run the policy and hadn't even read it," Corbett said. "This is nothing to be complacent about."

- Brian Shappell, CBA, NACM staff writer

To hear a replay of "How to Read a Credit Insurance Policy" visit the FCIB Education On Demand webpage.

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 German Retail Sector Starting to Feel Deep Impact of Economic Changes

Germany, long the pillar of Europe's economy, still remains in the driver's seat there. However, times appear to be getting tougher, and not just anecdotally, amid the European Union-wide recession struggle with a thinly veiled threat of a sovereign credit rating downgrade and another bankruptcy filing at a significant retail company that closely followed.

Moody's Investment Services moved Germany's credit outlook from stable to negative based on "the rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework and the increased susceptibility to event-risk stemming from the increased likelihood of Greece's exit from the euro area, including the broader impact that such an event would have on euro-area members, particularly Spain and Italy." Moody's said that even if a crash was avoided in Spain and Italy, Germany and its "Aaa" rating could be tested by being relied upon too heavily to ensure the euro "is preserved in its current form."

One week prior to Moody's announcement came the headline-grabbing insolvency filing of German mail-order retailer Neckermann. Some 2,000 jobs could be lost as part of the retailer's collapse, and it led many to jump to the conclusion that the EU debt crisis is the primary culprit for the ills of this company and others who have found it tough to stay afloat. However, Ben Deboeck, country and sector risk coordinator for Belgian-based Ducroire Delcredere, and Regine Hilgers of German-based ISP Global Technologies said that it's worth noting Neckermann had long been in trouble, and it was potentially unfair to pin its individual failings entirely on the larger debt crisis.

"Retailers have had problems for a long time," said Hilgers, who serves on FCIB's European Advisory Council. "They were hit most, I believe, at the beginning of Ebay, Amazon [and other online retailers]. People got used to shopping online, and checking prices is easy. So, this, as well as Schleker [a grocery chain] and Karstadt [a Macy's-style retailer], was not a shock, and long-expected."

That said, such instances of insolvency could be part of an increasing trend depending on how the EU responds to troubles with members such as Greece, Spain and Italy. And spreading to other sectors is not out of the question.

"Given the current sluggish economic environment, it should of course be of little surprise that weaker companies, even in stronger countries such as Germany and the like, are heavily exposed to the current downturn," said Deboeck, who keynoted FCIB's Annual International Credit and Risk Management Summit in Hamburg in May. "I guess the Peugeot/Citroën problems are probably a better example of the direct fallout of the crisis, though, and may be more worrying in regards to things to come for European industries if the downturn becomes really protracted."

- Brian Shappell, CBA, NACM staff writer

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Russia Set to Join WTO Next Month, Congress Continues Work on PNTR

Russia took its final step toward becoming a full-fledged member of the World Trade Organization (WTO) this week. Russian President Vladimir Putin approved the terms of the country's WTO accession package on July 21, completing the domestic ratification process and setting the stage for Russia's entrance into the global trade body on August 22.

"Russia is the sixth largest economy in the world, and today's action marks a significant point in the evolution of the WTO and the global trading system," said U.S. Trade Representative Ron Kirk after news of the approval. "As we have long said, Russia's membership in the WTO's rules-based global trading system can benefit Russia, the WTO and the United States. Congress should continue to work on legislation regarding Jackson-Vanik and Permanent Normal Trade Relations (PNTR) for Russia so American businesses, workers and creators have access to the same benefits from Russia's membership that their foreign competitors have."

While no bill has been approved yet, after a great deal of legislative wrangling, the U.S. Congress looks poised to instate PNTR with Russia ahead of the official start of the country's WTO membership. The Senate Finance Committee, whose jurisdiction includes trade policy, approved a bill repealing the Jackson-Vanik Amendment, a Cold War regulation that made U.S. preferential tariff rates for Russian products conditional on the country allowing Jews and other minorities to emigrate freely. The amendment is regularly suspended as a matter of course, but under WTO rules, were it to remain on the books, Russia could deny the U.S. access to the markets it will open as part of its WTO accession agreement. Repealing Jackson-Vanik will establish PNTR and clear the way for U.S. companies to take full advantage of Russia's WTO membership.

Approval of PNTR now falls to the House Ways and Means Committee, which will consider its own measure that is expected to mirror the legislation approved by the Senate Finance Committee.

Both bills will include elements of the Magnitsky Act, legislation named for anti-corruption lawyer Sergei Magnitsky, who died in 2009 under mysterious circumstances after serving a year in a Russian prison, that would deny visas and freeze the assets of parties suspected of involvement in Magnitsky's death, as well as those of other Russian human rights abusers. Russia strongly opposes the Magnitsky Act, and its inclusion in any PNTR bill could easily ruffle some feathers in the Kremlin.

- Jacob Barron, CICP, NACM staff writer

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RoomStore Chapter 11 Filing Collapses into Liquidation

Following a contentious fight between the company and its unsecured creditors, the judge in RoomStore, Inc.'s Chapter 11 bankruptcy filing has granted the company's motion to convert the case to a Chapter 7 liquidation instead, marking an end to the retailer's attempt to continue operating.

The ruling by Judge Douglas Tice of the U.S. Bankruptcy Court for the Eastern District of Virginia eliminates the need for the unsecured creditors' committee and allows a trustee to be appointed to sell RoomStore's remaining assets, of which there are few. As the company's going-out-of-business sales have already been conducted, the only things left to liquidate are the company's 65% share in bedding retailer Mattress Discounters and a large distribution center in North Carolina.

In siding with the debtor, Tice rejected a motion by the unsecured creditors' committee to keep the case in Chapter 11, and appoint a Chapter 11 Trustee in order to oversee the company's wind-down. Ahead of the case's conversion to a Chapter 7, the committee had accused RoomStore's board of gross mismanagement that, according to filings, led to "complete and utter financial ruin" during the debtor's attempts to reorganize.

Among the allegations leveled against RoomStore in an 81-page motion filed earlier by the unsecured creditors' committee are that the company failed to pay $2 million in sales taxes collected during its going-out-of-business sales, didn't comply with a court order to divest its 65% stake in Mattress Discounters, allowed its stores to accept payments from buyers despite knowing that merchandise would never be delivered and burned through $10 million in operating funds while "wildly missing sales and cash forecasts."

Disagreements with the committee, however, weren't the only factors that led RoomStore to liqudation. While the debtor denied the unsecured creditors' accusations, Roomstore also noted in its petition to convert to Chapter 7 that doing so would give the company more leverage in its fight with former debtor-in-possession (DIP) financier Salus Capital Partners. Salus recently terminated its DIP financing agreement with RoomStore, and is currently threatening to take what's left of the company's assets.

RoomStore joins Borders Bookstores, Circuit City, Inc., and several others to become one of several retailers that have been unable to successfully reorganize using the Chapter 11 process over the last decade or so.

- Jacob Barron, CICP, NACM staff writer

NACM continues to advocate for improvement within the Bankruptcy Code. NACM's suggested changes to the Code and position on other issues can be read in NACM's Issue Brief, which can also be found on the NACM Advocacy webpage. Be sure to visit this page regularly for updates regarding these issues.

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Who is Up, Who is Down in Risk, Business Climate

The latest Coface Country Risk Overview for the summer of 2012 echoes the chorus of concern regarding recessionary conditions throughout much of the globe, as well as slowing growth rates in the emerging economies that had been carrying demand. That said, Indonesia might be the hottest new up-and-coming country.

On the positive side of things, countries that either saw an upgrade or removal from a negative watch list include Slovakia, Indonesia, Nicaragua and the Ivory Coast, granted the latter two are rated at a C and D level, respectively. Indonesia also saw its business climate assessment upgraded and now sits on the positive watch list along with the United States and the Ivory Coast. Coface noted Indonesia's business climate has improved dramatically in recent years and has the ability to withstand the euro-zone debt crisis in part because of continuing demand for commodities from China that is expected to continue in earnest.

Meanwhile, the following have either been downgraded, removed from a positive watch list or placed under a negative one: the Czech Republic and India (though both remain at a healthy A3 rating overall), Spain, Italy, Cyprus and Guatemala. The list of downgraded or negative watch-listed countries for respective business climates includes India, Argentina and Syria.

- Brian Shappell, CBA, NACM staff writer


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

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