Nashville Rebounding Well From Tragic Flooding

After harrowing early May storms and subsequent flooding caused more than $2 billion in damages to Nashville and were responsible for nearly two dozen deaths, the Music City, host of NACM's 2011 Credit Congress next May, is on its way back. In fact, contacts there report that repairs expected to be done before to the host site and various popular city attractions before year's end.

The following was send to NACM about a week ago by staff at the Gaylord Opryland Resort & Convention Center:

"We continue to make excellent progress on the restoration of Gaylord Opryland Resort & Convention Center -- and remain on track to meet our November 15, 2010 reopening date.

More than a thousand people are at work inside the hotel every day - representing 38 separate contracting companies including architectural, interior design, procurement, engineering, and construction.

During the clean up and remediation phase, now complete, we removed every porous surface that was touched by water, along with all furniture, flooring and other materials that were damaged by the flood. During this process we removed 1,200 dumpsters full of debris. We also replaced affected air ducts to ensure a clean, comfortable environment for future guests. Industrial hygienists have inspected the hotel from top to bottom and have given us a clean bill of health!

We have unveiled the first preliminary renderings of several of the Gaylord Opryland's redesigned spaces, including the Cascades Lobby, Cascades Bar and Magnolia guest rooms. The Cascades Lobby will be entirely new, open and modern. The new front desk and ticketing station will be accompanied by the addition of a VIP area just off the lobby. The entire Cascades atrium is being redesigned - including a new bar, restaurant and enhanced water features. You'll also find new Italian and Mexican restaurant concepts in the Garden Conservatory. Plus, the Magnolia lobby is undergoing a complete redesign, as are the Magnolia guest rooms and five Presidential suites. Click here to view renderings and construction progress photos.

Even with the Opry House closed for restoration, the Grand Ole Opry hasn't missed a beat. The show is being performed in locations throughout Nashville. The restoration of the Opry House is on schedule - with a reopening planned for October 1. The General Jackson Showboat is operating daily and just celebrated its 25th anniversary on the Cumberland River. And Gaylord Springs Golf Course will welcome its first charity golf tournament since the flood later this month.

Please visit often to keep up-to-date with our progress - and to view the renderings of our newly redesigned space. We can't wait to welcome you back to Gaylord Opryland and all of its attractions throughout Nashville."

Best regards,
Kemp Gallineau
Senior Vice President & Chief Sales Officer

UPDATED: Fairness Heart of Latest Delphi Hearing

A judge will listen to arguments regarding whether an ethics breach occurred in the Delphi Corp. reorganization as several defendants found out they were sued by the company some three years after the company's reorganization plan was approved. The case could set an example for whether companies going through bankruptcy proceedings can file cases secretly and sit on them, without serving defendants, for a lengthy period of time.

Auto-parts supplier Delphi, which declared bankruptcy in 2005 and exited in 2009, is suing various companies/vendors for a total that some estimate is as large as $500 million for taking payments outside the regular course of business. Many of the defendants are alleged in various suits to have taken payments from Delphi, which formerly was the largest supplier to General Motors during part of its pre-2005 run.

Some close to the case question the fairness in the lawsuits proceeding any further as the identities of the defendants was sealed for a significant period of time when the reorganization plans were coming to fruition, and the parties were not notified that a case would eventually involve them. Among other arguements are that companies defending themselves may have entirely new employees that don't know details or changed computer systems, figuring agreements were made and plans were confirmed and there was no sign of any future legal ramifications. There is also a question as to whether the suits meet a newly set Surpreme Court standards calling for more sepcifics and identification of underlying facts such as antecedent debt.

(Editor's Note: A follow-up of the July 23 hearing on the Delphi case will be featured in the July 29 edition of NACM's eNews).

Brian Shappell, NACM staff writer

Two Words from Bernanke Shake Confidence in Recovery

In many circles, former Federal Reserve Chairman Alan Greenspan was defined by and/or mocked for using the word "frothy" to describe the overheated housing market's fueling of the economy last decade. His successor, who remains keenly concerned about ongoing small businesses and commercial real estate problems, may now find himself defined by two: "unusual uncertainty."

The two words were the primary talking point coming out of Fed Chairman Ben Bernanke's presentation of the "Semiannual Monetary Policy Report to the Congress" before the Senate Banking Committee Wednesday. Such "unusual uncertainty" was the trigger behind scaled-back economic projections of the already tepid recovery's strength. Bernanke noted small businesses have been "particularly hard hit" among ongoing overall economic struggles because of factors such as tight credit standards, newer regulations that are better suited for large banks and ongoing elevated unemployment levels. He also talked of the more than 40 meetings Fed officials have had with small businesses and lenders in recent months in an attempt to help matters.

Various problems with real estate were also noted by Bernanke: "The housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction...spending on nonresidential structures-weighed down by high vacancy rates and tight credit-has continued to contract."

However, Bernanke, who has been panned of late for being less clear and detailed with lawmakers than when he first took the chair position, did note several reasons to hold on to some optimism for the rebound to continue, even if at a slower-than-desired pace. Bernanke outlined predictions for low inflation and Fed rates for the next year-plus, an unemployment rate that is likely to drop by nearly 3 full percentage points by the end of 2012 and vague signs that the rate of decline in commercial real estate is ready to fall.

"We don't think a double-dip [recession] is a likely event," said Bernanke, trying to reassure a group of senators on both sides of the political aisle who appeared throughout the hearing to be more interested in trying to use the chairman to lob thinly veiled shots at their counterparts than ask questions pertaining to the actual monetary policy report or even the economic recovery.

Brian Shappell, NACM staff writer

Moody’s Downgrades Ireland Rating

Irish eyes are indeed not smiling as one of the big three ratings agencies started the week by downgrading the nation's credit rating amid ballooning debt and sparse potential for economic growth through mid-decade.

Moody's Investment Services served up the news that it was cutting Ireland's government bond rating, to a still somewhat solid Aa2 rating, for the second time this summer citing the following:
  1. The government's gradual but significant loss of financial strength, as reflected by the substantial increase in the debt-to-GDP ratio and weakening debt affordability (as represented by interest payment to government revenue).
  2. Ireland's weakened growth prospects as a result of the severe downturn in the financial services and real estate sectors and an ongoing contraction in private sector credit.
  3. The crystallization of contingent liabilities from the banking system, as represented by a series of recapitalization measures and the need to create the National Asset Management Agency (NAMA), a government-created special purpose vehicle that is acquiring impaired loans from banks.
Moody's intimated that ongoing uncertainty trumped the fact that Ireland has long been known for having a wealthy and flexible economy with considerable institutional strength, all of which puts it on massively better footing than fellow "PIIGS" nation Greece, which also includes the struggling/high-debt European nations Portugal, Ireland, Italy and Spain. The ratings agency even intimated it could turn on a dime, so to speak, with its assessment of Ireland.

"At the Aa2 rating level, the upside and downside risks are evenly balanced. If the GDP growth trend were to exceed Moody's expectations--- with a quick resumption of domestic credit flow and a supportive global economic environment ---then the government's debt metrics could stabilize earlier than is currently being assumed," said Moody's Vice President/Senior Credit Officer Dietmar Hornung.

It's been widely speculated that additional downgrades are unlikely for the foreseeable future for Italy and Spain. And, for their part, ratings agencies Fitch and Standard & Poor's did not cut Ireland's rating, as the trio has for most if not all of the other PIIGS nations at least once during the spring/summer.

Still, the drop in the Irish rating does appear to fit into predictions that ratings agencies would react with extreme caution, at times possibly overreacting to credit concerns, because the big three's respective reputations were impaired so badly due to the well-documented poor performance during the economic boom years in the United States and abroad.

"They've become much more conservative, and that's likely to stay for a while," said NACM Economic Advisor Chris Kuehl, Ph.D. of Armada Corporate Intelligence. "Everything is getting downgraded. You're seen downgrading of several countries, which has irritated the Europeans. They have been stung for being too positive, so they're going the other direction."

Brian Shappell, NACM staff writer

UPDATED 7-21-10: Obama Signs Financial Reform Bill Into Law

President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 into law this morning. Here are a few of the bill's most relevenat provisions:

-Sarbanes-Oxley Exemption: Companies with a market cap under $75 million will be exempt from the Sarbanes-Oxley Act's Section 404(b), which would require third party audits of a company's internal controls. The provision was opposed by some officials and the Center for Audit Quality (CAQ), but survived the negotiations intact.

-Interchange Fees: The bill charges the Federal Reserve Board with, among many other things, issuing new rules on interchange fees, including the possibility of caps on said fees. Additionally, merchants will now legally be able to offer discounts to customers using cards that are cheaper for them to accept and be able to set minimums for card transactions.

-Credit Ratings Agencies (CRAs): Red-headed stepchildren of the financial crisis though they remain, the big CRAs got off pretty easy from the bill. Rather than facing any real impending regulations, the industry instead faces a two-year long study of its conduct by the Securities & Exchange Commission (SEC), and a specific office within the SEC that the bill also creates. After that period, and if no one has any better ideas, the SEC would have to devise and implement a plan to create a panel that assigns certain CRAs to certain issuers of asset-backed securities, thereby reducing the risk for conflicts of interest. The industry would also be far more vulnerable to legal liability should they give high ratings to risky investments.

-Consumer Protection: One of the bill's most controversial provisions creates a new consumer bureau to regulate mortgages, credit cards and other financial products. Working as part of the Federal Reserve, the Consumer Financial Protection Bureau would have the authority to write broad rules for various products offered by lenders. Critics of the new regulatory agency, of which there were several, argued that its new regulations could potentially even further reduce the availability of credit to consumers. Auto dealers and pawnbrokers are exempt from the bureau's regulation.

-Resolution Authority: The government, and specifically the Federal Deposit Insurance Corporation (FDIC), would have the authority to wind down failing firms using money fronted by the U.S. Treasury. Any taxpayer money used, however, would be paid back through an agreed-on repayment plan. Additionally, the bill creates a new council that will monitor systemic risks throughout the financial system and make recommendations to regulators about how that risk can be alleviated.

More than anything, the bill seems to heap a great deal of responsibility onto the nation's financial regulators. Most will have to conduct new research or design new rules for a wide array of different problems. And while the passage of the bill itself is big news, the real story may be the rules that will be seen, and felt, in the years to come from regulators empowered with new authorities.

Jacob Barron, NACM staff writer

Obama Export Council: Economic Driver or ‘Rerun?’

President Barack Obama, like many economists, believes one of the keys to a robust economic recovery or even survival during the sluggish portions of the rebound lies in increased exporting by U.S. businesses. Thus, Obama has relaunched a stated effort to double U.S. exports over the next five years through the President's Export Council and the Export Promotion Cabinet.
It sounds great on the surface, but many in the business and finance world appear more than a little underwhelmed.

The President's Export Council, consisting of top business and labor leaders, and Export Promotion Cabinet, senior administration and Presidential Cabinet members, aim to increase businesses' profits with the end-goal of spurring significant job growth through a significant increase in exporting activity, even if the domestic economic rebound remains sluggish. Part of this stems from the emergence of economic opportunity abroad, as places including Brazil, India and even Muslim-ruled portions of the Middle East are experiencing surges in commercialism while battered Americans appear more fiscally conservative. Obama focused on that saying it is "not where jobs will are today, but where American jobs will be tomorrow."

"Ninety-five percent of the world's customers and fastest growing markets are beyond our borders," Obama said in a July address. "So, if we want to find new growth streams, if we want to find new markets and new opportunity, we've got to compete for those customers - because other nations are competing for those new customers.

Through the National Export Initiative, the Obama White House has tried to increase advocacy of U.S. businesses in the international marketplace and worked to new free trade agreements in recent months. But underwhelmed economists like Ken Goldstein, of the Conference Board, responded with comments such as, "I've seen this show before, and it doesn't play better in reruns."
One of the key obstacles to creating a spike in exporting is that domestic efforts to allow companies to sell more freely, easily and fairly abroad often have been stunted by what has been seen globally as protectionist, foot-dragging responses from the U.S. to offer the same opportunities to companies based in such emerging nations.

"I think it's a sincere effort, but it's window dressing at the moment," said NACM Economic Advisor Chris Kuehl, of Armada Corporate Intelligence. "They're forming a commission that's going to say ‘selling stuff is better than not selling stuff.' Wow. The problem is Democrats are negative on trade. You cannot sell if you don't buy. No country in the world is interested in exports if they can't import. If we want to sell to the Brazilians and Indians, we actually have to buy their stuff, too."

Brian Shappell, NACM staff writer

Fed Kicks off Small Business Financing Summit

The Federal Reserve kicked off it's forum Monday on the needs of cash- and, now, credit-strapped small businesses in Washington, DC with an address by Fed Chairman Ben Bernanke, who called for more effort on the part of government agencies and more lending on the part of banks.

Bernanke opened "Addressing the Financial Needs of Small Businesses" echoing the Fed's long-held sentiment that financial institutions simply aren't lending enough to worthy business borrowers. He also touched on the fact that Fed's efforts to date have not solved credit problems for such entities, and that more needed to be done on their part and that of other government agencies for the good of U.S. small businesses and the greater economic recovery as a whole. He also warned that inter-agency collaborative and flexible efforts would be needed because America's small businesses run the gamut from pizzerias to start-up technology firms. "We should be wary of one-size-fits-all solutions," said Bernanke.

The chairman, who didn't get too far into specific solutions during his brief speech, focused heavily on a series of more than 40 meetings nationwide with between Fed officials and small business owners as well as lenders in recent months:

"Some common themes emerged from the sessions. Business owners frequently noted that the declining value of real estate and other collateral securing their loans poses a particularly severe challenge. As one business owner at the Detroit meeting I attended put it, ‘If you thought housing had declined in value, take a look at what equipment is worth.' Business owners cited credit lines and working capital as their most critical financial needs, followed by refinancing products that would permit them to take advantage of low interest rates. Many reported having had to resort to borrowing through their personal credit cards or from their retirement accounts. Several mentioned the need for small-value loans in amounts less than $200,000 as well as the need for "patient capital" from investors willing to commit funds for 5 to 10 years without an expectation of immediate returns...

Some of the lenders that participated in our meetings expressed the view that current lending conditions don't represent credit tightening as much as a return to more traditional underwriting standards following a period of too-lax standards. But, though some lenders said they were emphasizing cash flow and relying less on collateral values in evaluating creditworthiness, it seems clear that some creditworthy businesses--including some whose collateral has lost value but whose cash flows remain strong--have had difficulty obtaining the credit that they need to expand, and in some cases, even to continue operating. The challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment. It is in lenders' interest, after all, to lend to creditworthy borrowers; ultimately, that's how they earn their profits. Regulators, for their part, need to continue to work with lenders to help them do all that they prudently can to meet the needs of creditworthy small businesses. Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges."

To view the speech in its entirety, click here. NACM staff writer Jake Barron is reporting from the Fed's small business financing forum, and coverage will be available in the upcoming edition of eNews on Thursday.

Brian Shappell, NACM staff writer

Fed Hosting Small Business Financing Forum

The Federal Reserve, in an effort to aid ailing small businesses who have had trouble garnering loans or assistance from both public and private sources, will be hosting an event to consider strategies to improve access to credit for domestic companies.

"The forum serves as a capstone for a series of more than 40 regional meetings that were hosted by the Federal Reserve this year," said the Fed in a recent statement. "Chairman Ben S. Bernanke and Governor Elizabeth A. Duke will deliver remarks. Leaders from small businesses, trade groups, financial institutions, and other federal agencies will also participate in the conference."

The event begins at 10 a.m. with the Fed chairman and will include sessions on the national economic outlook, private sector financing, public/nonprofit sector financing and the importance of research and data in understanding small business issues. Representatives from the U.S. Small Business Administration, National Federation of Independent Business Research Foundation, several regional Federal Reserve Bank branches, the National Small Business Association and the U.S. Hispanic Chamber of Commerce will be among those participating in panels throughout the daylong forum.

Organizations interested in attending the conference should call Joe Pavel in the Board's Public Affairs Office at (202) 452-2955 to register.

For a full agenda, click here.

Brian Shappell, NACM staff writer

Ratings Agencies Move to Downgrading Each Other

In a move that smacks of throwing stones from its own glass house, one of the big three credit ratings agencies is threatening to downgrade the rating of one of its counterparts/competitors amid the seemingly imminent enactment of a federal financial reform package.

After weeks of criticism from lawmakers and experts directed at ratings agencies that had too many conflicts of interest in rating products from the financial industry, Standard & Poor's has placed fellow big three agency Moody's Corp. (Moody's Investment Services) on its negative CreditWatch list. In essence, S&P believes provisions within the massive financial reform legislation package, expected to pass the Senate and the president's desk within weeks, will increase litigation related costs for Moody's and force an alteration of its business practices. All of this will, in theory, lead to lower profit margins for Moody's, who perhaps were hit hardest from the Capitol Hill soapbox and were characterized as a "Aaa factory" for its easy-to-get high ratings, especially on packaged home mortgage loans, that failed to live up to their billing.

S&P explained its decision to put Moody's on the watch list, and in a very public manner:

"The agreed upon legislation contains a provision whereby investors may be able to sue rating agencies if they can show that the agency knowingly or recklessly failed to conduct a reasonable investigation of the factual elements relied upon by a credit rating agency's rating methodology, or obtain a reasonable verification of those factual elements from independent third-party sources. While we believe it is likely that the new pleading standard will lead to an increase in litigation-related costs at Moody's, whether the new pleading standard would potentially increase the likelihood of successful litigation against Moody's will be determined in the future by the courts. Moody's management has stated that it plans to adapt its business practices in an effort to partially offset any potential new litigation risks associated with the legislation. Nevertheless, we believe that Moody's may face higher operating costs, lower margins, and increases in litigation-related event risk...In addition, if the final legislation removes many or all references to nationally recognized statistical rating organizations (NRSROs) from federal regulations, it may reduce investor demand for ratings. While we believe the latter change is unlikely to meaningfully impair Moody's business position over the near term, we plan to consider its long-term impact. As per our criteria, greater business risk and lower profitability would be key factors in a potential downward revision of our evaluation of Moody's business profile or a potential rating downgrade. In addition, Moody's business will likely undergo noticeable changes due to new global regulations and the U.S. legislation's impact on industry risk, which are business risk considerations under our criteria."

S&P did note Moody's profitability has been strong and consistent in recent years and that it would resolve/update the CreditWatch status for Moody's in the "near term," likely soon after it analyzes the signed, final version of financial reform.

Brian Shappell, NACM staff writer