eNews March 27, 2014

March 27, 2014


News Briefs

  1. STS Update: Mississippi Lien Bill Heads to Governor
  2. Positive Underlying Trends Abound in Housing, Consumer Confidence
  3. Fitch Knocks Russia, Affirms US Credit Rating in Wake of Tit-for-Tat Sanctions
  4. Sustained Comeback Kicking into Gear for Spain?
  5. US, Philippines Agree to Increase Trade Engagement as Ex-Im Signs $1 Billion MOU
  6. Default Activity Reports More Positive on Global Corporate Finance than Sovereigns


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STS Update: Mississippi Lien Bill Heads to Governor

A new bill awaiting the signature of Mississippi Governor Phil Bryant will expand lien rights to subcontractors in that state.

After previously passing the Senate and then overcoming some minor hurdles in the House, the state legislature advanced a final version of Senate Bill 2622 out of conference committee late last week. Once the bill is signed into law, subcontractors working in Mississippi will immediately have access to the lien rights that have previously only applied to general contractors, or any party with a direct contract with the owner of a project.

The enactment of SB 2622 would bring an end to a saga that began with the Mississippi Supreme Court's declaration last fall that the state's stop notice statute was unconstitutional. Before SB 2622 emerged, stop notices were one of the only payment protections for Mississippi subcontractors. After it was voided by the state Supreme Court's ruling, advocates scrambled to enact a new lien statute, the result of which is now SB 2622.

Some objections to the bill came from the general contractor community, but Chris Ring of NACM's Secured Transaction Services (STS) thought opponents to the bill were missing the point entirely. "Who does the vast majority of lending on these projects?" Ring asked previously when SB 2622 was introduced. "Banks lend on these, but they're obviously being funded on the credit that subcontractors and materials suppliers provide as well. If you strip away the rights they have on the money that they're lending, that just means less private jobs are going to be started in Mississippi. That's what owners and GCs should be extremely worried about."

In the end, however, only one state Senator voted against the measure. Governor Bryant's signature is expected soon, and will end Mississippi's reign as the only state in the country without a lien law applicable to subcontractors.

To learn more about NACM's STS, click here.

- Jacob Barron, CICP, NACM staff writer

Upcoming Credit Congress Session Highlights: De-Mystifying Cash Flow, GMROII Analysis

Speaker: Jim Morphey, CBF, ICCE, GE Capital

This session evaluates cash flow from an easy-to-understand layman's perspective. The cash cycle, as well as the conversion cycle, is reviewed. Find out why any credit review should start with an analysis of the debtor's cash flow metrics performance. Additionally, learn why GMROII is important for both the debtor and credit manager to understand in today's environment. Lastly, find out how an understanding of these topics can assist credit executives in consulting with their customers and adding value to the sale process.

Learn more and register for Credit Congress here.

Positive Underlying Trends Abound in Housing, Consumer Confidence

Though the latest housing data show monthly declines, two reports released on March 25 offer hope that statistics may improve more dramatically once the impact of this frigid and storm-laden winter passes.

The Standard & Poor's (S&P)/Case-Schiller Home Prices Indices showed almost no change from December 2013 to January in the 10-City Composite and only a 0.1% loss in the 20-City Composite. The best performance came again from Las Vegas, which posted a 1.1% gain during the period, with Seattle falling the hardest in month-to-month tracking (-0.8%).

Change between January 2013 and January 2014 was positive, with 13.5% and 13.2% annual gains, respectively, for the 10- and 20-City Composites. In fact, all 20 cities showed annual gains, with 13 of them in double-figures. Las Vegas led the way, falling just short of a 25% increase. Granted, analysts noted the Nevada city remains farthest from its peak level of the last decade, which it reached in 2006, than any other city tracked. Dallas and Denver, with a 10% and 9% annual increase each, are closing in on their all-time index highs despite being middle-of-the-pack among annual gainers. Cleveland recorded the most anemic rise (4%).  

Overall, the slightly poor monthly numbers were all but expected due to the weather. Expectations were similar for residential real estate sales for February 2014, according to the US Department of Commerce. However, sales dropped by a less-than-expected margin (3.3%) from January to February. While home prices were rising through February, analysts suspect the possibility that it has more to do with a lack of supply in the types of housing buyers now desire ("McMansions" are out).  

Meanwhile, consumer confidence was effectively undeterred by weather issues. The Conference Board's Consumer Confidence Index reached its highest level since 2008, jumping to 82.3 in March from the 78.3 posted in the prior month. Consumers appeared more upbeat about future job prospects and the overall economy than categories like income growth, said Lynn Franco, director of economic indicators at The Conference Board, in a press statement. "Overall, consumers expect the economy to continue improving and believe it may even pick up a little steam in the months ahead." Those anticipating conditions for business to worsen declined from 13.6% in February to 10.2% in March.

- Brian Shappell, CBA, CICP, NACM staff writer

NACM Business Debt Collections: Professional. Experienced. Effective.

NACM Affiliate Collection Departments have the experience and resources to collect your past-due accounts, large or small, as quickly as possible. With the ability to draw on a nationwide network of affiliates, we provide the depth of knowledge and commercial collection expertise your company needs to overcome bad debt. NACM Affiliates exhaust all collection possibilities before recommending litigation to you. Collection efforts are tailored to your unique needs to ensure recoveries and enhanced cash flow.

NACM Affiliate collection services include:

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Contact your NACM Affiliate today! Click here to learn more about NACM Affiliate collection services.

Fitch Knocks Russia, Affirms US Credit Rating in Wake of Tit-for-Tat Sanctions

Last week's actions by big-3 ratings powerhouse Fitch threw some cold water on the fevered threat of a "new Cold War" between the US and Russia after the latter's absorption of Crimea. While Russia certainly has the US beaten in terms of land area, nuclear stockpiles and proven oil reserves, America's economy remains eight times larger than Russia's, making it better suited to withstand whatever economic sanctions Moscow might eventually aim at its Western rivals.

Russia, on the other hand, remains far more susceptible to economic turmoil, as illustrated by last week's negative revision by Fitch to its outlook on Russia's long-term foreign and local currency issue default ratings. In its downgrade, Fitch specifically cited "the potential impact of sanctions on Russia's economy and business environment," noting that the financial retaliation against Russia's incursion into Ukraine could exacerbate an already shaky economic situation characterized by slowing GDP growth and reduced investment.

"Since US and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support," Fitch said, noting that while the direct impact of the sanctions so far has been minor, "the incorporation of Crimea into the Russian Federation will likely lead the EU and US to extend sanctions further in response. Furthermore, foreign investors may anticipate additional official action and restrict Russian entities' access to external financing."

The US and EU previously placed visa restrictions on specific allies of Russian President Vladimir Putin while also freezing their property and assets. In response, Putin barred a handful of American officials and lawmakers from Moscow. The former action is expected to have greater economic ramifications than the latter, to put it mildly, and is something Fitch realizes. An hour after downgrading Russia, Fitch affirmed the US' 'AAA' credit rating and bumped its rating watch to stable, after marking it down to negative following the debt ceiling crisis in the fall of 2013.

The timing of the affirmation was incidental, as Fitch's ruling on the US aligned with its previously set review schedule. Nonetheless, the contrast between the economic standing of these two superpowers locking horns on the geopolitical stage is worth remembering.

- Jacob Barron, CICP, NACM staff writer

Now Surveying: North America and Oceania

FCIB's International Credit and Collections Survey is the only monthly survey of its kind. The easy-to-answer survey asks credit and risk management professionals to share payment trends and collection experience in categories like:

  • Top payment method
  • Average number of days granted
  • Average number of past due accounts
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The unique survey results, in conjunction with invaluable archived data, give participants critical insight into current and past global credit practices. Participation* enters you into a raffle for a chance to win a complimentary live or recorded one-day webinar of your choice from FCIB's Webinar Training Series.

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*International Certified Credit Executive (ICCE) applicants and renewals earn 1 participation point per post, per month.

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Sustained Comeback Kicking into Gear for Spain?

Spain's fall from grace as the European Union recession took hold was among the worst on the continent and had a direct impact, being one of the bloc's four most important and largest economies. Europe appears to be posting data that finally suggests a sustained rise in economic conditions in the region, with Spanish businesses ready to enjoy the recovery as much as other states.

The latest Markit Flash Eurozone PMI (Purchasing Managers' Index) tracked at 53.2, down a fraction from the 32-month high (53.3) posted last month. While Germany is a perennial driver and the number two economy and France was lauded for finally getting back on track, Spain, with final statistics due out next week, is importantly expected to show another rise in both output and new orders. It would be a fourth consecutive increase in both categories and provide continued optimism that the recovery could be sustained, not uneven, for a nation that in recent years saw unemployment rates near 25%.

Due to a history of slow payment, Spain has also been working to improve its business reputation. While the EU pushes greater insolvency reform throughout the bloc, Spanish lawmakers passed an overhaul that will encourage refinancing and restructuring for its struggling companies, rather than liquidation. The latter has been the norm rather than the exception in Spain and much of Europe, even for viable companies that needed short-term infusions of capital or simply more time to recover. Spain's new insolvency rules will allow for creditors to agree to restructured terms or refinancing during the early stages of a court bankruptcy proceeding, among many other measures.

However, not all is well economically in Spain. The nation and its businesses are bouncing back from a harrowing low, as is a young population that has been unable to find good jobs in-country for several years. Additionally, unlike Italy or France, Spain has a disadvantage when it comes to marketable, name-brand items it can manufacture, promote and sell. Still, comparatively, conditions have not been so bright for Spain at any point during this decade.

- 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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Click here to contact a participating NACM Affiliate today!

US, Philippines Agree to Increase Trade Engagement as Ex-Im Signs $1 Billion MOU

The Obama Administration turned its attention to the Philippines last week as the US and the Philippines concluded a two-day meeting under the Trade and Investment Framework Agreement (TIFA) at which both parties agreed to intensify their discussions of bilateral, regional and multilateral trade issues in the coming months.

On bilateral issues, the US recognized the Philippines' efforts to strengthen its intellectual property regime and overall framework for protecting worker rights, two sticking points that have been the focus of previous attempts to foster US-Philippines cooperation. Regardless, they have had a relatively strong trade relationship for more than a century, with total goods trade between the two nations at about $18 billion, up 41% since 2009. Services trade is also growing and exceeded $6 billion in 2012, which was also up 41% from 2009. US foreign direct investment in the Philippines is roughly $5 billion, concentrated heavily in manufacturing.

Just after wrapping up their latest discussions, the Export-Import Bank of the US announced that it had signed a $1 billion memorandum of understanding (MOU) with Raul Aguilos, undersecretary for the Department of Energy of the Republic of the Philippines, which suggests the US manufacturing concentration in the Philippines is likely to continue. According to the MOU, Ex-Im and the DOE will exchange information to match development needs in the Philippines with goods and services offered by American exporters. Specifically, the MOU targets renewable-energy and liquefied natural gas (LNG) projects aimed at upgrading and expanding the Philippine energy supply in the wake of Typhoon Yolanda.

"The agreement will channel much needed support to the Philippines from the American private sector and thereby boost jobs here at home," said Ex-Im Chairman and President Fred Hochberg. "The arrangement is a win-win for both our nations and evidences our deep ties and cooperation on numerous economic fronts."

- Jacob Barron, CICP, NACM staff writer

NACM Credit Career Center: Your Industry-Specific Resource for Employers and Job Seekers!

Join the ranks of the companies that turn to NACM's Credit Career Center to post job openings.

Job seekers: Find credit industry jobs, search by location whether domestic or international.
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Default Activity Reports More Positive on Global Corporate Finance than Sovereigns

A pair of mid-month reports from Fitch Ratings finds some common themes between the 2013 default standing of sovereigns and the global corporate credit industry, especially where emerging markets are concerned. However, it seems the corporate finance side is more likely to outperform the sovereign side going forward, largely because of the significant debt levels of many key nations.

Fitch analysts noted in two 2013 Transition and Default Study releases that improving industrial fundamentals were found in the last year, as was "welcomed stability" regarding economic growth prospects of the United States and European Union nations, at least those not to the far east of the bloc.  Still, because of lingering high debt levels and the noteworthy downgrades of the United Kingdom and France last year, the credit quality of sovereigns is expected to continue eroding in 2014 in the EU. Much of the same can be said for the biggest emerging markets.

The negative shift in emerging markets was notable on both the corporate finance and sovereign sides. Though 2013 downgrades were relatively on par with those of 2012, conditions were significantly off from the strong positive ratings momentum found in 2010 and 2011. In fact, the few 2013 upgrades either in corporate finance or sovereigns included none of the once-vaunted BRICS (Brazil, Russia, India, China and South Africa). Mexico appeared to be the star, with upgrades on each side. Fitch was also positive on the progress of Uruguay, the Philippines, Peru, Thailand and Latvia.

- Brian Shappell, CBA, CICP, NACM staff writer


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