In the News
February 11, 2016
Although beleaguered throughout President Barack Obama's second term, the coal industry can claim relief, if not victory, this week on the heels of a high court decision against the administration's climate change platform.
A divided Supreme Court of the United States ruled in a 5-to-4 vote to delay the enacting of the pollution/carbon emission reduction plan championed by the Obama Administration. The ruling casts significant doubts on the Environmental Protection Agency's Clean Power Plan, of which coal was viewed as the biggest loser among stakeholders. Further court consideration is expected to drag on through the president's final days in office and perhaps beyond.
Advocates for the coal industry, which suffered a spate of bankruptcy filings in 2015 caused in part by escalating federal regulation and enhanced competition from other energy sectors, have argued that Obama's plan oversteps the government's authority and puts all companies tied to the industry at financial risk. Although the Supreme Court ruled in favor of further review of the planâ€”as opposed to striking it down or deeming it unconstitutional outrightâ€”it provides breathing room for an industry that has taken repeated hits.
Since 2013, NACM's Industries to Watch series has warned trade creditors with customers tied to the coal industry to look closely at such factors as their cash availability and, more importantly, their ability to borrow for the next several years. It also has noted that opportunity still exists in the coal industry for those customers prepared to withstand troubled waters in the short and medium term. The court-imposed delay arguably represents the best news industry players that survived the industry downturn have received this decade.
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Global liquidity conditions for emerging market economies (EMEs) may have begun to tighten, according to the Bank for International Settlements (BIS). If this becomes a trend, customers in the these markets may increasingly ask trade creditors to fill the liquidity gap.
"The stock of U.S. dollar-denominated debt of non-banks outside the United States is an important gauge of global liquidity," BIS stated. "That stock stood at $9.8 trillion at the end of September 2015, unchanged from the end of June. U.S. dollar-denominated debt of non-banks in EMEs also held steady in the third quarter of 2015, at $3.3 trillion." However, the measureâ€”which is linked to the strength or weakness of the dollarâ€”stopped increasing during third-quarter 2015â€”the first time since 2009.
According to BIS research, a close link exists between debtâ€”especially in foreign currenciesâ€”and risk taking, said BIS General Manager Jaime Caruana at a recent London lecture. "The feedback loop between deleveraging and EME currency depreciation presents challenges that should not be underestimated," he noted. "That feedback loop has started to impact the broader economy in EMEs now that the dollar has started to appreciate." The strong dollar caused pressure to reduce debt in dollars, Caruana added.
These shifting global financial conditions, along with maturing financial cycles in a number of emerging economies, helped drive the current combination of disappointing economic growth, large shifts in exchange rates and sharp falls in commodity prices, Caruana said. These factors reflect phenomena that have accumulated over time, including policy choices, and should not be viewed as exogenous shocks or headwinds.
Although these developments present policymakers with significant challenges, they also provide an opportunity to move the global economy onto a more sustainable growth path, he said. "These transitions and realignments inevitably bring short-term discomfort in the financial markets. They also raise significant risks. But depending on the policy responses, they could eventually allow renewed and, above all, more sustainable and resilient growth, both in advanced economies and in key emerging economies."
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Feeling trusted by supervisors in the workplace has long been among the most frequently cited motivators of employees' levels of satisfaction or decisions to stay at a company even at a time of increased opportunity. Recent studies by NACM, the federal government, staffing firms and others have again reaffirmed this reality.
Exemplary credit managers are familiar with trustâ€”it is the hallmark of customer relationships ("Know Your Customer") and of getting the best out of credit staff. Trust, however, is not only a top-down issue for a credit team. Developing it internally inside and outside of the department can help a credit manager mitigate problems with co-workers, sales staff, upper management and subordinates alike, according to Bob Karau, CICP, who is in client financial services with law firm Robins Kaplan LLP.
"If you want to further your development in the credit profession, this may be the beginning of the next step in your journey," said Karau, who will present the Feb. 17 NACM webinar Trust is Not a Soft Skill: The Importance of Trust for Effective Credit and Collection Professionals. "It's never too late to improve and build trusted relationships. Trust can be learned and earned."
Mutual trust also comes in handy when managing staff, whether they work in the office or telecommute. Several credit managers told NACM of the trust they had for their best-performing credit professionals in an article on telecommuting in the trade credit industry, which will be featured in the upcoming, April edition of NACM's Business Credit magazine.
Although a majority of NACM members do not utilize telecommuting on a regular basis, those who do said productivity appeared stable or improved, in part because the employee feels trusted, valued and works to reward the leap of faith by a manager. The credit manager already needs to have upper management's trust before moving forward with a telecommuting option, which studies indicate can be a significant motivator for employee retention, and there's no better way to achieve this than ensuring tasks are being completed properly.
"Either KPI's [key performance indicators] are met or they are not," said Darrell Johnson, CCE, regional credit manager at O'Neal Steel, Inc. "I'm not concerned with the locations from which people work." He added that if credit managers can't trust their staff, "maybe they have the wrong people."
- Brian Shappell, CBA, CICP, NACM managing editor
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Reaction to the Illinois mechanic's lien statute changes that enable any party with a stake in the real estate tied to a project to substitute surety bonds for mechanic's liens continues to draw mixed reviews. Attorneys including Kori Banzanos, Esq., supported the changes, as noted in a Jan. 7 eNews article, saying it will provide a higher assurance of being collectable.
However, some credit professionals in the industry believe it runs the risk of costing material suppliers and subcontractors more money in many cases while attorneys, banks and general contractors (GCs) benefit. A lien claimant must monitor several new considerations because of the statutory changes, said Norm Cowie, CCE, director of credit at Paramont-EO. "Most of their leverage against the owner and general contractor would be reduced if not eliminated," Cowie said. He also predicted GCs would push subcontractors to bond over suppliers and questioned what happened to the maximum cap on attorneys' fees that previously existed in some situations.
In California, stakeholders are preparing to take arguments to the state Supreme Court regarding a lower court's "strict liability" decision in Jovana Hernandezcueva v. E.F. Brady Company, Inc. A California Court of Appeals ruling from December upheld a previous decision that a subcontractor could be held strictly liable for installing products that, even if unbeknown to its principals, were deemed harmful, according to the American Subcontractors Association. The case stems from installation of asbestos-based drywall in a commercial building in the 1970s, long before the dangers of such products were universally known, and a subsequent death tied to exposure.
"Today's legal system is heavily weighted toward precedent; if this ruling stands, material suppliers and subcontractors can experience future liability they are not aware exists today," warned Chris Ring, of NACM's Secured Transaction Services. "This should be watched closely by both subcontractors and material suppliers."
Meanwhile, the National Conference of State Legislators (NCSL) has released a detailed report categorizing and analyzing Public-Private Partnership (P3) statutes in the 33 states that have adopted such laws as well as the District of Columbia and Puerto Rico. Last year, 47 P3-related bills were considered nationwide, down from 68 in 2014 and a record 81 in 2013.
"States have turned to innovative approaches to help solve their transportation funding shortfalls," NCSL noted in a January report. "It is important to note that P3s do not act as a funding source. Rather, they can provide additional financing opportunities and create efficiencies leading to cost savings."
- NACM staff
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Representatives for the 12 countries that negotiated the Trans-Pacific Partnership (TPP) signed the agreement last week in New Zealand. Each country now has two years to ratify or reject it. As of press time, the agreement had not yet been sent to the U.S. Congress for consideration.
"No one should be under any illusions that, because the TPP is being signed today [Feb. 4], an up or down vote on the agreement is imminent," said Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee, in a Senate speech. "If history has taught us anything, it's that this process can, and often does, take a very long time to complete. In fact, it's not an exaggerationâ€”or even all that remarkableâ€”to say that it can take years to get an agreement through Congress after it is signed."
Several legislators, however, have already expressed their opinions, ranging from support to complete disapproval. Sen. Rob Portman (R-Ohio), former U.S. trade representative for President George W. Bush, has said he doesn't support the current trade deal as written. "From currency manipulation to rules of origin for automobiles to protection for U.S. biologics, we can do better," Portman said in a statement. "I cannot support the TPP in its current form because it doesn't provide [American workers with a] level playing field." Opposition also comes from industry, labor and environmental groups as well as presidential candidates on both sides of the political aisle. As such, Senate Majority Leader Mitch McConnell (R-KY) reportedly has said that the trade deal shouldn't come before the Senate until after the presidential election.
"I think the president would be making a big mistake to try to have that voted on during the election," McConnell told The Washington Post. "There's significant pushback all over the place. ... The next president, whoever that is, will have the authority to either revisit this one, if it doesn't pass, or finish the European deal or other deals, and give Congress a chance to weigh in on it."
Because Congress gave President Barack Obama authority to negotiate the deal and could only provide negotiating objectives, it can only verify whether he met them and then vote the measure up or down. It cannot amend the TPP. The nations that created the TPP comprise 40% of the world's economy and include the following: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.
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