eNews March 20, 2014

March 20, 2014


News Briefs

  1. Ex-Im Bank Partners with FCIB Association, Accelerates Access to Export Financing
  2. Industries to Watch: US Agriculture
  3. Pre-Pack Chapter 11s Getting Faster, Traditional Filings Getting Slower According to New Study
  4. Corporates More Bullish on Mexico than Brazil
  5. TTIP Courts Controversy, but Polls Show Overwhelming Support in US for FTAs
  6. Study Predicts Acceleration of Growth, Just Not in Q1


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Ex-Im Bank Partners with FCIB Association, Accelerates Access to Export Financing

The Export-Import Bank of the United States (Ex-Im Bank) signed on March 18 its cross-marketing partnership with thousands of credit and finance professionals who are represented by the Finance, Credit and International Business Association (FCIB), a division of the National Association of Credit Management. The Bank and FCIB signed a memorandum of understanding that expresses their mutual interest in providing information to business owners about how they may finance and expand export sales while sustaining US jobs.

"At the Ex-Im Bank, our singular focus is equipping US exporters with the tools they need to reach customers around the world and create jobs here at home," remarked Ex-Im Bank Chairman and President Fred Hochberg. "And we depend upon export finance and business credit professionals across America to connect us with entrepreneurs—particularly those from the small business community—who can benefit from the services we provide. FCIB is the primary network for those credit professionals, so naturally we’re excited about the opportunities that this working relationship will provide."

As part of the agreement, FCIB will leverage its membership network to distribute information about Ex-Im's risk-mitigating export credit insurance, loan guarantees and working capital programs. The FCIB Association contributes to the Trade Finance Guide published by U.S. Department of Commerce, and previously partnered with the International Trade Administration and US Commercial Service.

"FCIB and the Export-Import Bank essentially share the same mission: to help companies turn export opportunities into real sales that maintain and create US jobs and contribute to a stronger national economy," said Marta Chacon, director for the Americas at FCIB, and a Certified International Credit Professional. "While FCIB does this through education, networking, certification and credit reporting, Ex-Im does it through its unique export financing products that fill gaps between what the private sector can provide, and what security an exporter needs to complete a sale. By working together, we can empower even more companies to access overseas markets, growing businesses and creating jobs."

Source: Ex-Im Bank and FCIB

 Small-business exporters can learn about how Ex-Im Bank products can help them increase foreign sales at http://go.usa.gov/ZVTd, and how FCIB can help you handle the risk at www.fcibglobal.com.

The CMI Survey Promotes the Critical Role Credit Plays in Businesses. Complete it Now!

The Credit Managers' Index (CMI) survey is open until 5:00pm EST on Friday, March 21st. Every time you participate, you are contributing to a leading economic indicator.

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Industries to Watch: US Agriculture

It’s been at least a half-decade since US agriculture and downstream industries have faced so many problems so early in the year. In 2014, creditors dealing in the industry need to be aware that some long-term problems could be compounded by domestic weather and geopolitical strife, landing US agriculture firmly on the National Association of Credit Management's Industries to Watch list.

A number of factors are working against the agriculture industry. The Federal Reserve’s Beige Book economic roundup has documented ongoing drought conditions leading to poor crop yields in some areas while NACM Economist Chris Kuehl, PhD noted a general reduction in the size of beef herds plus a serious virus that has destroyed almost 10% of the usual pork production so far. This could lead to shortages in supply and higher prices once the large quantity of frozen product is used up.

Long-standing drought issues were joined by one of the most unpredictable winters in recent years, which plagued many regions. Beige Book contacts noted in recent weeks that major weather-related crop damage was apparent in places like District 5 (Richmond) and District 6 (Chicago), among others. The Beige Book also found crop prices at a lower point in January 2014 than a year earlier for a number of products including corn, wheat and soybeans. There was some good news, though, in the form of improved soil conditions in the Southeast and, for producers, higher prices for cotton and rice.

It seems there is significantly more negativity surrounding the industry. Kuehl said issues facing the Ag industry have commodities analysts and other experts worried. "This is shaping up to be the year when all the travails in the agricultural world start to catch up with the markets," he warned. "There has been an unrelenting series of problems affecting farm output in the US as well as most of the rest of the world." While some of the issues will result in higher food prices in stores, only so much can realistically be passed on before a change in buying habits and even deeper problems take hold.  

These conditions could also be compounded by a potential rise in energy prices, which is what happened in 2008 when energy prices spiked due to crude oil exceeding $145 a barrel, Kuehl recalled.

 At the same time, food costs rose by 5.5%, resulting in a number of problems. He called the oil price volatility in 2014 somewhat less threatening, for now, but suggested recent escalating turmoil in the Middle East and Eastern Europe could easily spin further out of control at any time. If that occurs, the most likely scenario is quick and painful price spikes that the Ag industry is unprepared to handle at present.  

- Brian Shappell, CBA, CICP, NACM staff writer

NACM National Trade Credit Report—By NACM Members, for NACM Members

When it comes to providing businesses with factual, accurate and relevant information, the NACM National Trade Credit Report is the right choice. NACM National Trade Credit Reports include trade payment data, days beyond terms and fresh, robust and timely business information.

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Pre-Pack Chapter 11s Getting Faster, Traditional Filings Getting Slower According to New Study

As pre-packaged Chapter 11 filings have grown more popular for large corporate debtors, the pace at which these cases are resolved has sped up, according to an analysis published in the March edition of the ABI Journal. However, the same study found that normal "free fall" Chapter 11 cases are often taking longer, draining further value from the debtors that can least afford it.

The study, titled "The Fast and Laborious: Chapter 11 Case Trends," found that while less than 40% of Chapter 11 cases filed in 2008 were pre-packs, by 2012 that percentage had grown to more than 60%, leading some experts to classify pre-pack cases as the "new normal." At the same time, the prevalence of pre-pack cases has contributed to an overall increase in the average speed with which companies wind their way through a Chapter 11 filing, with authors Dennis Meloro of Greenberg Traurig LLP, Randall Reese of Chapter 11 Dockets and Travis Vandell of UpShot Services LLC finding that large Chapter 11s filed at the end of 2012 were expected to reach their conclusion, meaning either the confirmation of a plan, approval of a sale, conversion to a Chapter 7 or dismissal, 25% faster than similar cases filed at the beginning of 2008.

Traditional Chapter 11s, however, now drag on longer than they did in the prior decade. "The typical large 'free-fall' case filed in late 2012 is expected to take approximately 13%—or 49 days—longer than the time that a large free-fall case filed in early 2008 took," the authors wrote. "As key parties-in-interest are reaching negotiated frameworks for restructurings before a Chapter 11 filing in a larger percentage of cases, today's pool of 'free fall' debtors includes the cases with the thorniest and most complex restructuring issues."

The increase in pre-planned and prepackaged cases, according to Meloro, Reese and Vandell, is largely being driven by "relatively solvent, viable companies" that are seeking to avoid the unknowns of a traditional Chapter 11 and the "spiraling administrative and professional costs" that accompany a standard reorganization. Typically the longer a Chapter 11 case languishes in the court system, the more value these administrative costs drain from the estate, leaving less for unsecured creditors that are often already paid last in reorganizations, if they're paid at all. Pre-packaged cases and quick-sale filings can also often be unkind to unsecured trade suppliers, as a Chapter 11 debtor can often negotiate the terms of this filing with little input from its unsecured creditors.

- Jacob Barron, CICP, NACM staff writer

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Corporates More Bullish on Mexico than Brazil

A study on Latin America conducted at the end of 2013 and released this month by Fitch Ratings reported a mixed outlook wherein few study participants expect particularly hot activity out of either Brazil or Mexico this year. However, the sentiment of businesses contacted by Fitch seems to indicate that Mexico is expected to continue moving forward and, in the long term, at a much faster clip than Brazil, which has far more problems.

Fitch analysts noted that after one year in office, Mexico’s present regime should be comfortable implementing new policies. Optimism for Mexico is also being spurred by the continued economic growth in the US as well as their own energy reform policy with Petroleos Mexicanos (Pemex) opening up to private investment and an increase in service provider partnerships, including those based in the US.

"Over the long run, energy reform should allow Pemex to reverse decades of under-exploration and production declines stemming from constrained investment," said Fitch. "The greatest potential for a significant production boost lies in deepwater crude and unconventional shale gas."

Meanwhile, in Brazil, service providers were particularly disappointed with the country's activity in late 2013, with an elevated inflation much worse than Mexico's becoming a significant issue. Inflation is expected to escalate as the US continues to tighten its stimulus efforts through the Federal Reserve and other means, but not every sector has been hit hard in Brazil or are lacking in other opportunities.

"The economy of Brazil continues to be challenging to forecast…however, the agricultural sector has experienced record harvests, which has had a positive impact on the trucking business," a representative from Meritor, Inc. reported to Fitch. "Infrastructure demands also continue to be high due to the upcoming World Cup and 2016 Olympics."

- Brian Shappell, CBA, CICP, NACM staff writer

Read more about the problems facing emerging markets like Brazil and Mexico in the April issue of Business Credit, available later this month in print and online at www.nacm.org.

Members Rank NACM Industry Credit Groups as #1 "Must Have"

Need information? How do you find your way between fact and fiction, hope and charity, and faith and foolishness?

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Industry credit groups open communication lines for the exchange of credit information. Credit executives receive invaluable factual credit information upon which to base independent decisions with respect to the extension of credit.

Managed and operated by NACM Affiliates nationwide, credit groups:

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Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.

TTIP Courts Controversy, but Polls Show Overwhelming Support in US for FTAs

The US and the European Union concluded the fourth round of negotiations last week on the Transatlantic Trade and Investment Partnership (TTIP), setting the stage for further development on the landmark free trade agreement (FTA) when US President Barack Obama meets with European Council President Herman Von Rompuy later this month in Brussels.

Negotiators in the fourth round focused on aspects of the agreement pertaining to services, labor, rules of origin, intellectual property and regulatory sectors, among others, with US Trade Representative Michael Froman remarking after the meeting's conclusion that "we know we have a lot of work ahead of us, but we have a good understanding of the key issues that need to be resolved." Among these issues could be a dispute-settlement provision that has courted controversy from environmentalists on both sides of the Atlantic.

The TTIP's "investor-state dispute settlement" measure would allow private corporations to sue governments if they felt that local laws within countries included in the agreement were jeopardizing their business. The environmental community fears that this would allow oil companies to legally challenge anti-fracking laws in the EU and provide an opening for large agriculture businesses to fight the EU's ban on genetically-modified organisms. The provision has garnered so much controversy that even proponents of the TTIP are calling for its removal, noting that the dispute settlement process is only a small part of the agreement's goal to further build on what's already the world's strongest trade relationship between the US and the EU.

Still, regardless of how negotiators respond to the outcry, in the US they at least have public opinion on their side. A new poll commissioned by the Business Roundtable (BRT) found that more than 80% of Americans support the US negotiating trade agreements to expand market access for US goods and services. A whopping 85% specifically support the ongoing US trade negotiations for the TTIP and for the nation's other big FTA priority, the Trans-Pacific Partnership (TPP).

BRT President John Engler said the poll proved that Congress should act quickly to grant President Obama Trade Promotion Authority (TPA), which would fast track the enactment of FTAs upon their completion. "For trade skeptics, this data may come as a surprise, but US business leaders have long known that Americans understand the central role US trade agreements play in stimulating economic growth, opening new markets, spurring investment and supporting jobs," Engler said. "Congress needs to act now on TPA legislation. Further inaction will only delay the benefits that will come when US companies can sell more goods and services to other countries."

- Jacob Barron, CICP, NACM staff writer

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Study Predicts Acceleration of Growth, Just Not in Q1

A new study on growth and its constraints released by Wells Fargo Securities, LLC said winter weather is the overwhelming reason that real US gross domestic product growth will be slow in the opening quarter of 2014, but should improve.  

The study, done in conjunction with the International Monetary Fund and the Organization for Economic Cooperation and Development, was mostly positive about American growth prospects. It highlighted gains in non-farm payroll, the easing of gridlock among federal lawmakers over spending and debt and also hinted at approval of the Federal Reserve’s tapering efforts. Additionally, those in the Wells Fargo's Economics Group noted that inflation is still at an acceptable level. The US is also benefiting from the rebound of European nations, which might see growth of 1.3% in 2014.

"The US economy should grow 2.5% this year, which would be stronger than its disappointing performance last year, and then ramp up to 3% growth in 2015," the study said. "There will be less fiscal drag in the United States this year, and American consumers have made good progress over the past few years in repairing their battered balance sheets."

- Brian Shappell, CBA, CICP, NACM staff writer

More from the Wells Fargo Securities’ study on various international markets prospects as well as details on the first Federal Reserve Federal Open Market Committee meeting under Fed Chair Janet Yellen is available on NACM's blog.


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




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