Two Largest U.S. Bankruptcies in History Advancing Through Courts After Long Waits

Three years after the two largest Chapter 11 bankruptcy filings in U.S. history, one case appears close to the finish line, while another could very well be stalled for some time.
U.S. Bankruptcy Court for the Southern District of New York Judge James M. Peck approved the Lehman Brothers' payment plan to creditors Tuesday. Specifics of the plan will be available to the nearly 50 creditors who combined for claims exceeding $130 within weeks, with a Nov. 4 voting deadline.

A confirmation hearing is tentatively scheduled for Dec. 6. Bryan Marsal, LBHI's Chief Executive Officer called the judge’s approval of the plan a “major milestone” in the complicated bankruptcy case. Coincidentally, there was also significant news in the last week coming out of the second largest bankruptcy case in U.S. history, though it may not be all that close to completion.

Also nearly at the three year point since it filed for Chapter 11 bankruptcy protection, Washington Mutuals creditors and shareholders presented final arguments in bankruptcy court asking for the judge to reject a $7 billion reorganization plan. Opponents argued a settlement deal WaMu made with a group of hedge funds undermines the fairness of the bankruptcy process and alleged incidents of insider trading.

The proposed settlement, like many proposed bankruptcy plans in recent years, would leave unsecured creditors and shareholders with little or nothing, more likely the latter. Even U.S. Bankruptcy Judge Mary Walrath intimated the case continues to be convoluted by those involved and that a decision on her part isn’t necessarily imminent.

Brian Shappell, NACM staff writer

Another 'Green' Business Falls Too Far Into the Red

The realities of a tough market for sustainability based products and services, which were all the rage during the late boom years last decade, continue to dampen the once rose-colored view on green  business. Yet another blow to the so-called green products and services niche segment came last week as New York-based SpectraWatt Inc., a spin-off of Intel Corp. that had been based in Oregon until 2009, filed for Chapter 11 bankruptcy protection.

SpectraWatt officials said the company’s products, primarily high-tech solar cells, had become “noncompetitive” as Asian manufacturers continue to deeply undercut the firm and its competitors on pricing and overhead. Hurting matters for the company earlier this year was its unknowing receipt of defective components that were used in the production of its own products, which caused their value to plummet.

In the filing, SpectraWatt foreshadowed a slew of solar business failures by pushing for an auction to be held quickly, in less than one month, on its prediction that the market will be flooded with such solar product sales very soon. It's a prediction Credit Management Association's Mike Joncich make in an interview for stories in NACM's eNews ann the new issue of Business Credit Magazine. He noted the industry's problems go deeper than just a downturn/slow recovery:

"A lot of companies started up to participate in that sector—there was a substantial investment in green companies that are making the best of products that are energy- or resource-saving," said Joncich. "But there was over-investment in those industries, and a number of companies are going to fall out that didn't have the right ideas or right business models to survive. Credit managers have to be aware of such phenomena."

Also this month, Massachusetts-based Evergreen Solar filed for Chapter 11 bankruptcy protection. Despite receiving millions in federal and state grant dollars and tax incentives, the solar business has struggled mightily in the last two to three years. Earlier this year, it shut down a U.S. plant that employed more than 800 people and, like a Maryland-based BP solar operation before it, relocated abroad to save costs.

Brian Shappell, NACM staff writer

Bernanke's Awaited Speech More About the Known than the Future

The highly anticipated speech by Federal Reserve Chairman Ben Bernanke at an annual symposium held in Jackson Hole, WY, yielded little in the way of new information. Instead, the chairman avoided the issue of another anticipated stimulus program (quantitative easing/QE III), played the part of cheerleader for long-term growth prospects and even needled a Congress, one that has been so critical of the Fed, over its woeful handling of the debt ceiling/budget debate.

Bernanke reiterated to the annual meeting about Federal Reserve montary policy held by Fed Bank of Kansas City the message the Fed has only recently started admitting: that the recession was much deeper than originally thought and the recovery was going to continue to be slower than anticipated and hoped. Much of this can be tied to the ongoing housing market woes and their impact on household wealth as well as employment levels. Still, Bernanke spent much of his speech wearing proverbial rose-colored glasses:

“Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if--and I stress if--our country takes the necessary steps [such as more proactive housing and monetary policies] to secure that outcome. Economic healing will take a while, and there may be setbacks along the way. However, the healing process should not leave major scars.” Bernanke boasted of the U.S. economy’s diversity, traditional strong market advantages, entrepreneurial culture and technological leadership, as well. However, the Fed chairman did touch on worries for the not-so-distant future: health care costs, entitlements of an aging population and a K-12 school system that “poorly serves a substantial portion of our population.”

In what appeared a thinly veiled shot at Congressional lawmakers, Bernanke noted U.S. businesses and consumers “would be well served by a better process for making fiscal decisions:”

“The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses…fiscal policymakers could consider developing a more effective process.”

Brian Shappell, NACM staff writer

Fifth Circuit Reverses Panel Opinion on Asset Concealing

On August 11, the Fifth Circuit Court of Appeals overturned the decision of a three judge panel of the same court that would have disallowed a bankruptcy trustee from pursuing a judgment owned by a debtor, who concealed assets during the bankruptcy proceeding, based on the concept that the Chapter 7 trustee “steps into the shoes of the debtor.”  The City of Arlington maintained that the debtor’s failure to disclose estopped the trustee from collection on the judgment.

From a creditor’s perspective, this decision is very important.  The three judge panel’s decision, which reversed the district court’s opinion, held that the trustee effectively stepped into the debtor's shoes for purposes of judicial estoppel and, therefore, was prohibited from pursuing a $1 million judgment that the debtor had recovered against the city of Arlington, which the debtor failed to disclose in his schedules. 

The en banc court, in Reed v. City of Arlington, reversed the panel’s decision and provides that in the Fifth Circuit, as a general rule, “absent unusual circumstances, an innocent trustee can pursue for the benefit of creditors a judgment or cause of action that the debtor fails to disclose in bankruptcy.”

The decision is important for several reasons.  First, as the Fifth Circuit notes, it protects the interest of creditors as well as the integrity of the bankruptcy process, which has at its core the concept that all assets should be preserved and be available to satisfy creditor claims.  Second, it recognizes clearly that creditors should not be punished for a debtor's intentional non-disclosure of assets.  Finally, the decision begs a number of questions: What about a situation in which the asset was unintentional or deceptively concealed?  What constitutes “unusual circumstances?"  When would a trustee not be innocent?  These questions will be left for the bankruptcy court to determine.

Source: Bruce W. Akerly, Cantey Hanger LLP

Japan Hit by Credit Downgrade

Already reeling Japan got more bad economic news as Moody’s Investment Services cut its credit rating this week amid growing debt concerns. The move, however, did not set off the panic that followed the Standard & Poor’s downgrade of the United States, perhaps because some expected a post-disaster downgrade was inevitable and perhaps because the long-term view of Japan is not negative.

Moody’s dropped Japan’s rating to Aa3 from Aa2, while issuing a “stable” outlook for the nation. It is the first downgrade for Japan by Moody’s in nearly a decade. Moody’s explained the move by discussing the large budget deficit since the 2009 global recession, partially laying the blame at the feet at the inconsistency of Japanese policy-makers, and the natural disaster’s impact on holding back the nation’s recovery:

“Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies. The March 11 earthquake and tsunami, and the subsequent disaster at the Fukushima Daiichi Nuclear Power Station, have delayed recovery from the 2009 global recession and aggravated deflationary conditions. Prospects for economic growth are weak, making it more difficult for the government to achieve deficit reduction targets and implement its Comprehensive Tax and Social Security Reform plan.”

It was, however, noted that Japan does enjoy positive factors such as “undiminished home bias of Japanese investors and their preference for government bond” and “considerable institutional and structural strengths.”

Japan reacted swiftly today to the ratings downgrade by trying to reduce the value of the yen and with the announcement that it would release $100 billion in foreign-exchange reserves to a state run bank with the purpose of helping exporters by facilitating more overseas purchases.

Brian Shappell, NACM staff writer

Asian Economies, Despite Trade Prowess, Not Immune to the Downturn

The past several months has started to shake assumptions, based on Asian nations’ ability to develop more internal markets than in the past, made regarding immunity from the downturn. The latest set of slowdowns has really had an impact on South Korea, Taiwan, Australia, Thailand, Singapore, Malaysia and others. Even a member of the So-called BRICs Nations, India, has been shaken by these latest developments, as well. The short answer as to why these economies are feeling the pinch is that they are still far from being independent of the Western consumer.

Without the demand that has traditionally come from the US and Europe, the Asian economies are discovering that demand is not sufficient to maintain their expected level of economic growth. The domestic markets are far larger than they have been in the past, but they are still meager in comparison, which is bad news for the exporting sector.
The Chinese have been aggressively trying to shift the patterns of the past but, even there, it has been slow going in many respects. It has been allowing the currency to appreciate just a little more than in the past as a means by which to combat inflation. This makes prices at home a little more reasonable at the expense of the exporters. There has been an impressive rate of retail growth, but the country doesn’t want to see consumers saddled with the debt loads that exist in the United States and Europe. Therefore, debt has been pulled back to some degree.

Analysis: The impact is especially harsh for those nations that emulated Japan in terms of economic organization. The Japanese economy has been moribund for years at the same time that its corporations have become bigger players in the world. They essentially have transcended Japan and shifted production/sales to wherever the opportunities have been greatest. That isn’t necessarily for the Japanese economy as a whole. Other Asian states are experiencing something akin to this, as Korean companies become global alongside those from Taiwan and Singapore. The Japanese also are under extreme stress at the moment, as they are still dependent on their export sector and have had to fight the flight to the yen. Investors have surged out of the dollar and euro in search of stability and have elected to go after the yen for some reason. As the currency appreciates, the export sector could be affected negatively, and the stress on the economy becomes more profound.

Source: Strategic Global Intelligence Brief/NACM Economist Chris Kuehl

Regional Fed Report Foreshadows Tougher Times For Manufacturers

A bellwether regional Federal Reserve study Thursday continued to pour on the bad news for those hoping manufacturing could continue to bolster overall economic growth despite lagging in other sectors.

The Philadelphia Fed’s index tracking manufacturing conditions in its region, seen as a solid indicator for several other areas around the nation, declined to its lowest point since March 2009. The manufacturing industry index fell to a level of – (negative) 30.7, well below what is considered a neutral rating (zero). News of stagnant and/or slowing conditions mirrors findings in recent months within the Credit Manager’s Index (CMI), prepared by NACM Economist Chris Kuehl, PhD.

While far from a crash thus far, the noticeable slowing of orders leaves few silver linings. The Philadelphia Fed study also found the following:
  • Demand for manufactured goods paralleled the decline in the general activity index, falling 27 points.
  •  About 29% of the firms had scheduled shutdowns or slowdowns during the summer months this year.
  • About 40% said that seasonal factors have a significant influence on monthly production levels.
  • The current employment index fell 14 points to -5.2, recording its first negative reading in 12 months.
Manufacturing had carried the economy throughout 2010 and much of 2011. However, the sector is starting to bear more noticeable scars from the lack of the long-predicted, but absent, strong economic rebound.

Brian Shappell, NACM staff writer

Germany-France Euro Plan Leaves Many Underwhelmed

The leaders of Europe’s two powerhouse economies presented a plan to save the euro and foster more coordinated economic policy across the euro zone yesterday.  Markets reacted with an exasperated yawn.

U.S. stocks fell for the first time in four days and European banking and exchange shares went south after German Chancellor Angela Merkel and French President Nicolas Sarkozy announced, as part of their plan to keep their shared currency afloat, a proposal to tax financial transactions. The tax—only one part of the leaders’ plan—was originally rejected by the European Union last year and would likely hit banks and exchanges by curbing trading volume. Their proposal would seek to apply the tax to the whole EU, rather than just the 17 euro zone states.

The goal of the tax would be to shore up lagging revenue due to nearly non-existent economic growth.  The Merkel-Sarkozy plan was announced just on the heels of data indicating that Germany’s economy had slowed to a halt in the second quarter of 2011, with a 0.1% growth rate for the continent’s largest economy.

Investors were quick to voice their opposition to the tax, which the Association for Finance Markets in Europe (AFME) argued would do more harm than good.  “The financial services industry should not be seen as an additional source of tax revenue but as an essential part of at stable and sustainable economy,” said Simon Lewis, AFME chief executive. “The real impact of a possible transaction tax needs to be understood. Many financial transactions are carried out on behalf of businesses that would bear the cost of the additional tax. For example, the foreign exchange market underpins the international trade and a tax on these currency trades would increase costs for a large section of European industry, to the detriment of economic growth.”

Markets had hoped that the meeting between the two heads of state would lead to the creation of a bond backed by the entire euro zone—a safe-enough investment that would ultimately reduce borrowing costs for struggling European nations. Merkel and Sarkozy rejected the plan, however, on the grounds that the bond would let countries like Greece continue to behave irresponsibly and spend without regard for the EU as a whole. Sarkozy did note that a euro bond could be possible in the future, but that there’s nothing to justify its creation right now.

Merkel and Sarkozy also rejected markets’ other big hope for the meeting, which was an expansion of the 440 billion euro rescue fund. In addition to the financial transaction tax, they also proposed that debt limits be written into national law and that a euro council be established, headed by EU President Herman van Rompuy, to create a continent-wide “economic government.”

Jacob Barron, NACM staff writer

Fitch Upholds U.S. Credit Ratings

Upon learning that Fitch Ratings would be unveiling its decision on the United States’ credit ratings this morning shortly after 9 a.m. (EST), there likely was significant hand-wringing and pause before markets and analysts began to read the agency’s verdict. In a bit of relief for those concerned of more economic volatility both domestically and worldwide, Fitch upheld the United State’s top-level credit rating as well as its “stable” outlook.

Fitch affirmed the U.S. long-term foreign and local currency issuer default ratings as well as the U.S. Treasury security ratings and the U.S. Country Ceiling all at the top, “AAA level.” Though noting debt has caused the U.S. fiscal profile to “deteriorate sharply,” Fitch still rates the nation among the most reliable in the world from a credit standpoint:

“The affirmation of the U.S. ‘AAA’ sovereign rating reflects the facts that the key pillars of the U.S.’ exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base. Monetary and exchange rate flexibility further enhances the capacity of the economy to absorb and adjust to ‘shocks’…U.S. sovereign liabilities, both the dollar and Treasury securities, remain the global benchmark and, accordingly, the U.S. credit profile benefits from unparalleled financing flexibility and enhanced debt tolerance.”

Last week, Standard & Poor’s stripped the United States of its prestigious “AAA” rating on what it described as unease with a political “brinksmanship” that shook its confidence in the nation’s ability to deal with its large debt with the highest level of proper or efficient manner.  S&P lowered its long-term sovereign credit rating for the United States from the top level to AA+, with its short-term rating being affirmed at A-1+. Additionally, the outlook on the long-term rating was set at “negative” by S&P, which hit hard at federal lawmakers over the political theatrics associated with the debt-ceiling debate. Some experts, including NACM Economist Chris Kuehl, intimated the move feeds in to the view that S&P at times uses its ratings to influence nations’ monetary behavior or even punish them for not following their advice.

Speaking on the Fitch Rating, the Conference Board Economist Ken Goldstein told NACM that it, “underlines the point that S&P was making a statement more than assessment. And the question intensifies about whether they were making a statement about government finances or the agency’s ability to assess risk, in the wake of the mortgage debt debacle. It seems from some accounts that they took the GOP to task over resisting increasing revenues. If that is true, one wonders why that hasn’t gotten more play in the [mainstream] press.”

Brian Shappell, NACM staff writer

Economist: The Chances of Recession and What That Means

The wild gyrations of the market last week have had many effects from day-to-day, but the underlying threat seems to be the fear that a double-dip recession is imminent.

There is not yet an overwhelming consensus that a double-dip is imminent or even likely. There is the usual gloom and doom from economist Nouriel Roubini, but he has been asserting that the double-dip is around the corner since the middle of 2009. The statements from the National Bureau of Economic Research suggest that there is perhaps a 25% chance for the recession to return this year, and roughly 10% think the economy has already entered a period of decline. The majority still insist that there is growth, but it is very limited and halting in nature. The fact is that recessions typically are declared after the fact in any case. If one goes with the standard definition of recession—two consecutive quarters of negative GDP growth—the United States  would not be considered in recession until the end of the first quarter of 2012 at the earliest, as the third quarter GDP numbers for this year will be positive (not by much but positive). So, does it really matter if the economy is formally in recession?

To many people affected negatively by the economy, it hardly matters what the situation is referred to. They are out of a job or  are watching their business slowly fall for lack of demand. The recession label is not needed to describe their level of economic distress.

The signs of true economic health will vary from industry to industry and the performance of the stock market will be a relatively minor indicator. Earlier this year, the market was surging and gaining, but the economy as a whole was not healthy. Now the bears seem to have noticed that and the market seems to be reflecting the economic reality a bit more. If there is to be some tangible progress in the economy, it will have to manifest in job growth, GDP growth and other factors suggesting that consumers and producers are back in the game. The majority of the population is not going to relax much in regard to the economy until there is progress in the job market—and that means adding at least 300,000 new jobs a month. The number of new jobs was a little more than expected last week, but it is still a far cry from this minimum number. To make a dent in the long-term unemployed there needs to be gains of at least 500,000 jobs. If that number were to be reached, the GDP data would soon reflect the growth and would be hitting the 3%-per-quarter minimum needed for real expansion.

Source: Chris Kuehl, NACM Economist

Another Day of Weak Statistics Rounds Out Tough Week for U.S. Economy

Those looking for a silver lining on a week defined by a blow to the previously untouchable “AAA” U.S. credit rating and the subsequent rollercoaster ride on Wall Street weren’t going to find it in a couple of monthly studies unveiled at week’s end.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced June export totals of $170.9 billion and imports of $223.9 billion. The $53.1 billion deficit is the largest in two years.

Additionally, June exports were $4.1 billion off of May’s pace on lower demand in Europe and, to a lesser extent, Latin America as well as stagnant demand in Asia.
Still, Friday’s headline-grabber in the mainstream media was the University of Michigan/ThompsonReuters Consumer Sentiment Index’s fall from 63.7 to 54.9, the lowest rate in 31 years. Factors such as a housing market that has failed to show significant recovery, ongoing high unemployment and the newfound fears stoked up in the highly politicized and partisan debate over debt ceiling/budget matters appear to be the lead scapegoats for the shattered domestic optimism. 

Along with the rest of the week’s poor economic news, some analysts are starting to bandy about the dreaded “r word” (recession) again as well as a resurgence in talk of a double-dip. It’s far from a consensus, but it’s firmly back on the radar.
Surprisingly, the stock market surged Friday though, given that volatility now appears to be the norm on Wall Street, it appeared to be comforting few.

Brian Shappell, NACM staff writer

Chinese Import Numbers Provide Mild Relief to Confidence After Hard Six-Day Stretch

Rumors of China’s demise may have been greatly exaggerated or, if nothing else, seemed to be rooted more in paranoia of an unending global economic malaise than anything else amid its latest trade data.

China unveiled its monthly trade statistics this week claiming a $31.5 billion trade surplus in July, the highest level since 2009. While its dominance and a 20.4% surge in exporting up to $175.1 billion in (USD) could possibly act as an annoyance to other nation’s falling far behind in trade amid concerns of currency manipulation, exporters from other countries could take solace in its importing activity. After a disappointing June, Chinese importing jumped 22.9% to $144.6 billion.

Whatever the politics of trade and currency valuation, there is positive news to take out of the numbers that struggles in the European Union and a noteworthy credit downgrade for the United States hasn’t doomed the world economy.

“The trade surplus was the biggest in two years and that suggests that demand for China’s exports have continued to grow,” said NACM Economist Chris Kuehl. “This is pretty good news for those who have been insisting that there is no real sign of global expansion. It seems that consumers are still alive enough to buy the goods from China. This rise in output comes despite the efforts by the Chinese leadership to slow down the economy a little.”
In June, its trade surplus increased to $22.3 billion, up more than $10 billion from the previous month. Hinting at signs of a slowing economy was China’s import growth rate. Though still considered high at 19.3% in June, it had fallen from May’s 28.4% import growth rate. 

Any drop in Chinese importing could be a hit for U.S.- and European Union-confidence levels as businesses that have been increasingly reliant upon the Asian powerhouse’s continued growth, especially in middle class consumer culture, to offset losses and stagnation caused by the lack of a strong economic rebound in their parts of the globe.

Brian Shappell, NACM staff writer

Fed to Hold on Low Rates for Two Years, Admits Weakening Rebound

Under the intense scrutiny of world markets days after the United States’ embarrassing credit downgrade, officials emerged from the latest Federal Reserve monetary policy meeting pledging to keep interest rates low and stay the course on its Treasury securities. However, Chairman Ben Bernanke and company failed to unveil any new programs to help out the stalled economy, which the Fed finally admitted has been significantly slower in rebounding than predicted even as recently as six weeks ago.

The Fed’s Federal Open Market Committee held interest rates at a range between 0% and 0.25%. Additionally, the FOMC uncharacteristically gave a time range for keeping rates low of through mid-2013, hoping to ease concerns of the business sector. Previously, the FOMC fell back on statements of keeping rates low “for an extended period.” The FOMC opted to continue its “existing policy of reinvesting principal payments from its securities holdings.”

Without making mention of the Standard and Poor’s rating decrease, the FOMC noted economic growth was not likely to increase in rapid fashion anytime soon. It looked at long-term factors such as the unemployment rate and poor housing prices as well as more temporary problems such as supply-line disruptions tied to the Japanese earthquake/tsunami disaster as the main hurdles to a hot recovery period.

“The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting…Moreover, downside risks to the economic outlook have increased,” the Fed’s statement noted. “The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.  However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.”

Brian Shappell, NACM staff writer

Lawmaker 'Brinksmanship' Becomes Expensive Game on Rating Cut

Few outside of Washington appeared to believe the partisan game of chicken being played by Congress and the White House over the debt ceiling issue was a necessity, but it at least didn’t seem to do any real damage. That was until the weekend, when Standard & Poor’s stripped the United States of its prestigious AAA rating on what it described as unease with a political “brinksmanship” that shook its confidence in the nation’s ability to deal with its large debt with the highest level of proper or efficient manner.

S&P lowered its long-term sovereign credit rating for the United States from the top level to AA+, with its short-term rating being affirmed at A-1+. Additionally, the outlook on the long-term rating is viewed as “negative” by S&P, which hit hard at federal lawmakers over the political theatrics associated with the debt-ceiling debate an increasing number of analysts are characterizing as an unnecessary, manufactured controversy.

“We lowered our long-term rating on the U.S. because we believed the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process…The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective and less predictable,” said S&P in a statement.

The agency continued its bashing in an uncharacteristically long eight-page report explaining the rating downgrade saying the agency was “pessimistic about the capacity of Congress and the Administration” to govern properly during a challenging economic period. S&P also noted it was wary of the current crop of lawmakers effectively tacking structural debt issues or a needed lift to the spirit of bipartisan cooperation before the 2012 presidential election.

Brian Shappell, NACM staff writer

Canal Expansion Gets Panama in Good with Ratings Agency

The big three U.S.-based credit ratings agencies have been slow, to say the least, in handing out upgrades of credit ratings or outlooks for anyone not included in the BRIC nations (Brazil, Russia, India, China) since they were universally lambasted for their poor analysis and risk assessment in the run-up to the global economic downturn. That what makes the late-week gushing over Panama by Moody’s Investment Services all the more noteworthy.

Though leaving the nation’s credit rating unchanged, Moody’s upgraded Panama’s outlook to positive from stable. Perhaps more significant was the agency’s statements lauding Panama’s economic evolution, centered largely on the $5.25 billion Panama Canal expansion project. Said Moody’s, “the Panamanian economy has continued to show remarkable and enduring dynamism, and is well positioned to grow at rates above its potential thanks to the expansion of the Panama Canal and the government's ambitious efforts to improve and modernize the country's infrastructure…Panama continues to be one of the fastest growing and diversified countries in the Baa rated category.”

As discussed in a Selected Topics story in the November/December edition of Business Credit Magazine, the expansion of what had become an antiquated pass-through will allow much larger cargo ships, among other vessels, to travel through canal, opening up much faster and more direct shipping options to and from many ports, especially in the United States. To wit, the biggest benefit to domestic exporters and those abroad is cheaper shipping costs for reasons including less fuel costs because of shorter routes from the biggest ships, the lessened needs for larger ships to stay in ports longer to get a full load and competition largely absent from the market at present. Additionally, the expansion should spur more choice and variety as far as ports that realistically can be used. With an open, expanded canal, ports such as Savannah, New Orleans and Houston become much more important.

Additionally, it expands capabilities of small business exporting efforts routed from the West Coast ports to access emerging economies on the eastern shores of Latin America. This includes the pearl of economies in that part of the world: Brazil. The nation was ranked 10th among nations receiving exports from U.S. companies, taking in $41 billion in products in 2008, according to the U.S. International Trade Commission and a July report from left-leaning Washington think tank the Brookings Institution. And that number is expected to rise among nearly all predictions as Brazil’s growing appetite for products emanating from the transportation equipment industry as well as consumer products aimed at its newly emerging local middle-class and tourists en route there for the 2014 FIFA World Cup (soccer) and the 2016 Summer Olympics.

Brian Shappell, NACM staff writer

Lawmakers Hit Snooze Button (Again) on Big Municipal Bankruptcy Decision

On the heels on the fifth municipal bankruptcy filing this year in a small, yet press-hounded community in Rhode Island, lawmakers in an Alabama community have delayed a vote on a potential Chapter 9 filing there for the second consecutive week.

In Jefferson County, AL, it appears to be more a case of trying to work out a deal to stay out of bankruptcy rather than simply delaying the inevitable as county lawmakers moved a planned vote Thursday back eight days (to Aug. 12). A major creditor and Jefferson County are negotiating but remain far apart on terms thus far during negotiations – it’s been reported that the creditor is willing to shave as much as $1 billion off the county’s debt, but lawmakers want a larger break of $1.3 billion. Jefferson County’s main debt problems are related to the more than $3 billion in debts tied to a sewer rehab project there several years ago.

Alabama Gov. Robert Bentley noted earlier this summer that Chapter 9 was "a very strong possibility." It would be the largest municipal bankruptcy filing in U.S. history.

The delay in the vote regarding a Chapter 9 filing, which had been seen as an inevitability before creditors began negotiations, comes during the same week that Central Falls, RI opted to file. Facing pension obligations of about $80 million, an estimated $25 million deficit projection through 2016 and former employees or widows unwilling to voluntarily reduce their entitlements, it was seen as the only option to avoid financial doom for the cash-strapped community near Providence.

Brian Shappell, NACM staff writer





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Senate Approves Debt Ceiling Increase, Bill Heads for Signature

The Senate approved the bipartisan debt bill today, increasing the government's borrowing authority with just hours to spare before hitting the debt ceiling. After passing the House last night, the Senate approved the bill in a 74-26 vote, sending it on to President Barack Obama for his signature.

As previously reported, the deal raises the debt ceiling in two stages, initially providing an immediate $400 billion increase in the $14.3 trillion borrowing cap, then raising it another $500 billion this fall.  The agreement also cuts agency budgets and creates a bipartisan committee to draft legislation that finds an additional $1.5 trillion in deficit cuts that will be voted on later this year.

Agreement on the new bipartisan committee will be incentivized by the fact that failure to find common ground on which budgets to slash would trigger automatic spending cuts across the board, including cuts to defense spending.

While the deal prevents a default, a ratings downgrade from one of the big three credit rating agencies, Fitch, Standard & Poor's and Moody's, could still be forthcoming, due to the fact that the bill kicks many major decisions down the road and leaves investors with little in the way of certainty.

Stay tuned to NACM's blog for more updates.

Jacob Barron, NACM staff writer

Debt Deal is MadeĆ¢€”Maybe; So What Does it Look Like?

U.S. political leaders have made a deal on raising the debt ceiling. Now it will depend on whether those they lead will follow. Many will not, and the vote will now come down to the usual political positioning. The two parties will start counting votes and, when it is certain that the votes are there to pass it in Congress, the politicians that have the most to lose form being counted as a supporter will be “allowed” to vote no. The ultimate vote of support will be close but, unless the Republicans want to emasculate John Boehner and Mitch McConnell, they will support the compromise. And unless the Democrats want to cripple Barack Obama in the year before the election, they will back the deal as well.

Thus far, the markets are reacting as if the deal was certain—for the past couple of weeks there has been an assumption that a last-minute deal would shape up. That confidence was starting to shake a little last week, but even then the bond markets had remained pretty stable. But as the day wears on, that mood could shift.

The deal is as convoluted as one would expect after months of wrangling. At first glance it appears to be classic compromise. There is something for everyone in the deal, and something that will infuriate everyone as well. The basics are as follows. There will be an immediate $917 billion in cuts. This is far less than had been part of the deal in the past few weeks, when both parties had plans on the table that called for cuts of more than $3 trillion. This version has some specificity that the previous attempts lacked, however, and both sides have agreed on the cuts. The interesting part comes next when a further $1.5 trillion is cut at the recommendation of a congressional panel that will comprise select members of both parties. This is by far the most intriguing part of the deal, as it has the greatest chance of ultimate success. It reduces the impact of partisan debate, as most of the rest of Congress will be limited to pontificating on what they would like to see while the decisions will lie with only a few.

The debt ceiling is raised in two stages. The first takes place almost immediately and allows the government to fully honor its existing commitments. The next hike is contingent on the work of the commission or automatic cuts. There is also an opportunity in the table for Congress to vote on a balanced budget amendment, and that could play a role in all this. The House Republicans had been demanding that this amendment be considered and the Democrats had balked. The provision now is still pretty murky, but it looks as if an opportunity to consider such an amendment will be presented although there are no guarantees that it will be passed.

 Source: Armada Corporate Intelligence