CMI Sneak Peak: Conditions Improve to Spring Levels, Possibly on Easing Political Rhetoric/Brinksmanship

In the latest Credit Manager’s Index (CMI), now available on the NACM website’s main page, there seem to be rays of hope not seen in months for the economy and the credit industry.

NACM Economist Chris Kuehl, PhD, noted the soon-to-be-released index finds improving September levels for the overall index (53.8), sales (61.4) and favorable factors level (59.9), the latter of which hits its best mark since April. This was all welcome news coming off an abysmal August CMI downturn.

“For the past few months, there was a slow deterioration of key credit conditions and many were expecting to see more declines this month. Instead, the combined index returned to the levels set in July,” Kuehl said. “The overall sense at this stage is that there is some life left in the economy. There is still not enough evidence to be convincing, but the most chronically optimistic could say that a recovery is at hand. The data, however, is sufficient enough to make the case that the precipitous plunge predicted for the end of the year may not be taking place after all. Not that there is no threat of sinking back into recession, but a deep plunge seems more and more distant.”

It appears a big part of the setback in August can be laid squarely at the feet of federal lawmakers and their partisan brinksmanship tactics.

“There is abundant evidence that business activity is ramping up again from the drops in August, and it is looking more and more like much of the summer slowdown was prompted by all the political infighting,” said Kuehl. “The fact that August showed such a pronounced dip suggests that there really is something to that concern.”

The full CMI report and statistical analysis can be found at the NACM website (www.nacm.org) in the #1 position on the main page's information/news scroll.

Brian Shappell, NACM staff writer

Unfair to Lump Greece, Other PIIGS Nations Together?



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Will talk of the debt struggles and spreading contagion in four of the five so-called European “PIIGS Nations” resemble a distant memory within one to two years? One of the foremost international macroeconomic minds said just that when speaking at last weekend FCIB New York International Roundtable. Still, the five and most debt-saddled of the PIIGS, Greece, isn’t likely going anywhere soon, either in its debt standing or its affiliation with the rest of the European Zone.

Matthew Higgins, vice president of the Federal Reserve Bank or New York, stated he believes there was reason to be hopeful for significant improvements in four of the five PIIGS economies, which could take some of the hot spotlight in the mainstream media away from them. To wit, Italy and Spain are demonstrating they’re each on a “credible track” as far as austerity goes, and even Ireland and Portugal have hit most of their targets post-bailout. The only “real” concern, Higgins speculated, was Greece.

“Europe easily has the capacity to roll off Greece from the others – There’s a reasonable chance we won’t be talking about this two years from now or, with luck, maybe one year,” he told FCIB attendees. “But clearly, Greece itself is a real challenge. They’re going through a very large fiscal austerity process that dwarfs that of the U.S.”

Still, the euro zone nations carrying the Greeks financially, as well as others more in the middle economically may have little punitive recourse, going forward. Higgins suggests that cutting Greece out of the European Union entirely would amount to an “enormously disruptive mess.”

“The legal infrastructure to do so doesn’t even exist,” said Higgins. “And all the contracts would have to be rewritten.”

Higgins believes it would go a long way to stabilizing or improving all-important market confidence if the EU were to take steps such as firmly establishing a bailout mechanism that is more flexible and providing clarity to what the banking exposure/the related backstop system was for it. Clearly, simply cutting the Greeks out of the equation in no way resembles a cure-all or even feasible option in the short- and mid-term.

Brian Shappell, NACM staff writer

Business Confidence Stabilizes in Europe's Key Economy

It seems that no news really is good news. The German index of business confidence conducted by the LFO Institute didn’t change much this month -- At present, that passes for good news. The index fell through the summer and tumbled in August to 108.5. It is now slightly lower at 107.5,  the lowest point since June 2010.

The reality is that German businesspeople are none too enthused about what is happening in Europe as a whole. Still, they are slightly more upbeat about their own prospects and that of Germany as a whole. There is a sense that German businesspeople are trying to set aside the wrangling at the political level as they just go about their business. They are seeing some recovery in demand from the Asian economies, but nothing like what they saw earlier in the year.

The German economy is key to improvement in Europe as a whole, and there is nothing to suggest that happier times are imminent. The driving force for the German economy for the past two to three years has been the export sector, which slowed due to the decline in global trade. Germany still exports mostly to the other nations of Europe and the United States, and none of these economies have been robust. China, India and Brazil are more important than they have been in the past, but they are still secondary to the prime markets. The German business community has all but given up on the rest of Europe to rebound.

Meanwhile, solutions that continue to be put forward as far as Greece is concerned by the nations now carrying financially, including and especially Germany, all say the same thing: more cuts, more tax hikes, more austerity. This may make sense from an economic point of view, but politically this is a disaster. Greek citizens have reached the breaking point and threaten massive civil unrest. The unions are striking even in the sectors that are generally well-run and profitable. The fact is that Greece can’t be pushed much further.

Source: NACM Economist Chris Kuehl

Senate Approves TAA Extension, Paves Way for Trade Agreements

The Senate recently approved an extension of the Trade Adjustment Assistance (TAA) program, which trains American workers affected by global competition.

While the program’s renewal is notable, given that it also streamlines previous changes made to the TAA in 2009 and represents a rare instance of compromise in a sharply divided Congress, its passage is perhaps more important for exporters because it paves the way for action on the nation’s three pending free trade agreements (FTAs), with Panama, South Korea and Colombia. President Barack Obama had considered TAA renewal a condition that had to be met before those FTAs were sent to Congress for approval.

Now that an agreement has been reached, little stands between the agreements and their entrance into force.

“Today’s long-awaited Senate action should clear the path for consideration of our pending trade agreements,” said Rep. Dave Camp (R-MI), chairman of the House Committee on Ways & Means. “The next step is for the president to promptly submit the pending free trade agreements with Colombia, Panama and South Korea, which also enjoy bipartisan, bicameral support, to the House and bring us one step closer to passage.”

While President Obama set TAA passage as a precondition for the FTAs, Republican leaders demanded the opposite, that the FTAs be submitted prior to their approval of the TAA bill. Now that the Senate has approved the TAA extension, the GOP hopes that the President will relent, and submit the FTAs to the House, trusting that TAA approval would follow shortly after their arrival.

“The Senate today will have acted on trust in passing TAA even before we received the agreements,” said Senate Minority Leader Mitch McConnell (R-KY) after the vote. “But the White House has refused to show the same trust in Congressional Republicans who’ve assured them that TAA will move along with the FTAs.”

“I kept my promise that I would allow TAA to move forward in the Senate as long as Republicans had a chance to amend it. It is time for the administration to deliver on theirs. It’s time for the President to send up these long-pending FTAs without delay,” he added.

Stay tuned to NACM’s blog and NACM’s eNews for any future updates on the pending FTAs.

Jacob Barron, CICP, NACM staff writer

American Competitiveness a Concern at FCIB's New York Roundtable

At FCIB New York International Roundtable Wednesday statistics and anecdotal evidence seemed to question America’s ability to compete with other nations as key indicators clearly appear to be trending in the wrong direction.
Speaking on short-term growth prospects, Federal Reserve Bank of New York Vice President Matthew Higgins survey featuring a collective of top economists predicts upcoming gross domestic product growth for the United States at 2.2% as it continues to struggle with high unemployment and debt. It's well below other emergeing economies.

Long-term, the United States is not faring as well as many would have expected in the world rankings of key areas, especially those related to infrastructure and education. “The U.S. already is falling out of the ranks of leading nations in areas key to growth,” he said.

Another area where the United States is lagging, as illustrated in a subsequent FCIB Roundtable session, is within accounting standards. As the United States, more specifically the Security & Exchange Commission, goes back and forth regarding the International Financial Reporting Standards (IFRS), domestic businesses could find themselves in a tough spot no matter which side on which federal regulators fall, speaker Charles Blank suggested. Blank, senior manager at Grant Thorton LLP, noted that a number of nations have already moved toward the standard, developed by the International Accounting Standards Board to try to assure more uniformity and transparency among businesses throughout the globe.

And, in paraphrasing a comment from now former SEC Commissioner Kathleen Casey, the U.S. could very well affect its global competitiveness if it continues to “kick the can down the road.”

For more on the topic, view the lead story in this week's NACM eNews, available on the NACM website (www.nacm.org). More coverage of the FCIB Roundtable will be feature on the NACM blog as well as in subsequent editions of NACM eNews and Business Credit Magazine.

Brian Shappell, NACM staff writer

Fed Moves to Boost Economy, Despite Political Pressure

The Federal Reserve’s Federal Open Market Committee (FOMC) announced today that it would take new steps to stimulate America’s lagging economy. In addition to maintaining the target range for the federal funds rate at 0 to 0.25%, the FOMC also will also extend the average maturity of its securities holdings, with the goal of keeping long-term interest rates low.

“The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of six years to 30 years and to sell an equal amount of treasury securities with remaining maturities of three years or less,” said the FOMC in a statement.  “This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.”

The FOMC also reiterated the federal funds rate is likely to remain in the 0-0.25% range at least through the middle of 2013, citing low resource utilization along with a subdued outlook for inflation over the medium-term.

Safe in the knowledge that rates will remain low, and that long-term interest rates will hopefully be lower, banks and other lenders will ideally be moved by the Fed’s most recent actions to loosen up credit, generating an overall increase in business and especially consumer spending. Although, in its statement, fears of inflation are modest at best, some analysts believe the shift in the Fed’s portfolio from shorter-term, to longer-term holdings could create a spike in inflation. 

Three members of the FOMC voted against the decision.

The Fed's actions came following this morning’s news that Congressional Republicans sent a letter to the Federal Reserve urging Chairman Ben Bernanke not to take any further actions that could be described as “monetary stimulus.” “Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people,” said the letter, signed by Senate Minority Leader Mitch McConnell (R-KY), Senate Minority Whip Jon Kyl (R-TX), Speaker of the House John Boehner (R-OH), and House Majority Leader Eric Cantor (R-VA).

Although it turned out to be largely ignored by the FOMC, as many expected it to be, the letter ruffled feathers as a rare attempt to influence the behavior of the Fed, which is considered an independent agency designed to operate beyond the bounds of political influence.

Stay tuned to NACM’s blog and eNews for further updates and analysis.

Jacob Barron, CICP, NACM staff writer

Get News as it Breaks Wednesday from NACM

Be sure to check NACM's various social media platforms tomorrow for breaking updates on the FCIB New York International Roundtable and the Federal Reserve's two-day monetary policy meeting.

Wednesday's FCIB Roundtable, being held at Manhattan's famous Princeton Club, will be headlined by a rare appearance from keynote speaker Matthew Higgins, vice president of the Federal Reserve Bank of New York. NACM will be tweeting throughout the afternoon from the event, and coverage will be available on the blog and in eNews on Thursday.

For more infomration on the Roundtable or to register, visit www.fcibglobal.com and check out the events page, which is easily accessible from the website's home page.

In addition, NACM's blog will feature breaking coverage of the Fed announcement at http://blog.nacm.org. 

S&P Downgrades Again, But Do Confused Markets Care Anymore?

Italy is the latest to feel the wrath of the credit ratings agencies, as Standard & Poor's moved to downgrade Italian bonds. Once again, the market barely noticed, and many have started to assert that the ratings agencies have become next to irrelevant when it comes to these big country bonds.

It comes as no shock to investors that Italy has issues, and the downgrade didn’t add any relevant information to the mix. The Italians are right there with the other struggling PIIGS nations (Portugal, Ireland, Greece, Spain) in Europe as they watch the yields on their bonds rise. Italy is now looking at yields close to 6%, but at least they are still a far cry from the nearly 30% yield the Greek bonds are carrying. The major market collapse yesterday in Europe seems to have been overblown, and there already has been some recovery today as many investors filter back into the positions they abandoned yesterday. The issues are the same, but there is variability from day-to-day when it comes to investor faith.

The latest mood is slightly more upbeat on the subject of the Greek bailout. The sense is that something will happen to reduce the fallout from a Greek default and that has some feeling a little better about the potential for further collapse in other nations. The talk now is of a “managed default” that will reduce some of the impact on European banks and others exposed to the Greek debt. The aim seems to be to quarantine Greece and let the issues be their own as opposed to the concerns of the entire euro zone.

Analysis: The Europeans are simply confused. Everybody knows that Greece is in serious trouble, but they also know that there is capacity to bail them out. The Germans could have a change of heart and back the issuance of eurobonds or the IMF could ride to the rescue with another big loan. The Chinese might even step in. The point is that nobody has a good feel for what happens next. Even if Greece slips into default, there are few who have a sense of what that would look like. It is clear that it would be some kind of managed default, but that is murky at best. The scenarios range from an extreme position resulting in the explusion of Greece from the euro zone to something as limited as negotiated settlements with Greek debtors.

The real issue has and continues to be the Italians and the Spanish. The Italians are locked into the same bitter political battle with which the United States has been struggling. There is no consensus on what to do in Italy as even the ruling coalition is deeply split. The Spanish are in somewhat better shape politically as the Socialists are preparing to yield power to the Popular Party earlier than planned. The new prime minister will have far more latitude than the predecessor has had, but the issue in Spain is that a housing boom was followed by a massive bust and unemployment levels are still above 20%.

The market reaction to all this has been volatile as investors grab at every indication they see. Obviously, the US and Europe are not ready to resume their former positions of influence, and that leaves investors feeling a bit confused—again.

Source: NACM Economist Chris Kuehl

Pressure Builds for 3% Withholding Repeal

One provision in President Barack Obama’s recently released American Jobs Act would further delay the 3% withholding tax on government contracts by another year. GOP lawmakers, and a coalition of business advocates, are pushing him to go a step further, to a full repeal.

The 3% withholding tax is currently set to go into effect on all government contracts worth more than $10,000 in 2013, after a series of delays since its enactment in 2006. A full repeal has remained elusive however, as eliminating the withholding requirement from the books would keep an estimated $11 billion from the nation’s ailing Treasury. Nonetheless, Republican officials are using the newly proposed delay to mount a new push for a full repeal.

"The President must know how damaging the 3% withholding rules are, as his Jobs Act calls for an additional year delay in its implementation. But if it is so harmful to small business—which it is—why not repeal it outright?,” asked Rep. Mick Mulvaney (R-SC), chairman of the House Small Business Committee’s Subcommittee on Contracting and Workforce. “Majority Leader Eric Cantor has signaled that the repeal of this job-crushing withholding requirement will be on the House agenda this fall. I hope that the President & Senate Majority Leader Harry Reid (D-NV) will also support this repeal.”

“The 3% withholding tax would hurt small business cash flow and job growth. Delaying its repeal only continues uncertainty for small business contractors. Permanent repeal will provide more certainty and help create jobs now,” he added.

Joining Mulvaney at a press conference this week was Rep. Wally Herger (R-CA), sponsor of H.R. 674, a bipartisan bill that would repeal the 3% withholding tax and has garnered 241 cosponsors. “The 3% withholding tax will harm small businesses as well as state and local governments. We need to get it off the books once and for all to avoid placing small businesses, jobs across America and our economic recovery efforts at greater risk,” said Herger. “I look forward to working with House Leadership to ensure that we get this bill passed to help our economy.”

NACM has supported a full repeal of the 3% withholding tax since its enactment, and is a proud member of the Government Withholding Relief Coalition (GWRC), which continues to lobby for relief from this burdensome tax. Stay tuned to NACM’s blog and NACM’s eNews for further updates on the repeal effort.

Jacob Barron, CICP, NACM staff writer

WaMu Bankruptcy: It Ain't Over Till It's Over

Some bankruptcy and business watchers thought the three-year saga that is the Washington Mutual, on of the two largest Chapter 11 bankruptcy filings, was closing in on eyeshot of the finish line. Then, a judge in the U.S. Bankruptcy Court’s Third District (Delaware) dealt it another setback by siding with lower-level creditors.

Three years since filing for Chapter 11 bankruptcy protection, WaMu’s creditors and shareholders presented final arguments in bankruptcy court asking for the judge to reject a $7 billion reorganization plan last month. 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. U.S. Bankruptcy Judge Mary Walrath evidently found the argument compelling as she rejected the reorganization plan this week in court and ordered the sides to enter mediation. In the process, she reportedly intimated it was likely some involved in WaMu proceedings, namely a quartet of hedge funds, indeed engaged in insider trading practices to shape the bankruptcy process, as some lower-level creditors alleged.

The proposed settlement, like many proposed bankruptcy plans in recent years, would have left unsecured creditors and shareholders with little or nothing, more likely the latter. Even Walrath herself has described the case as convoluted and intimated that litigation was likely to rage on in one form or another for some time.

Brian Shappell, NACM staff writer

NY Fed Official: Monitor, Don't Panic Over BRICs

Despite growing whispers of concern over asset bubbles and inflation, a member of the of the Federal Reserve Bank of New York has retained an optimistic view regarding the BRICs Nations and their economic prospects.

Matthew Higgins, vice president of the Federal Reserve Bank of New York told NACM there has been a commodities-fueled inflation problem brewing within some of the emerging economies. However, such issues have started to ease somewhat in places like Brazil and India, among others. Higgins, who is the featured speaker at FCIB’s New York International Roundtable event on Sept. 21, noted the situations there and in Brazil, as three of the hottest economies in the world, obviously are worth watching, but there is little reason for businesses involved in global trade to have deep concern or panic at this time.

“All of the emerging economies are navigating a fairly difficult global environment,” said Higgins. “Those examples have been the most dynamic part of the global economy, and most observers think that is going to continue. Even in a rather troubled global economic environment, the projections are for good growth.”

Higgins also weiged in on the ongoing situation with three languishing free-trade agreements involving the United States. He said the agreements -- with Columbia, Panama, and South Korea -- would be helpful to U.S.-based exporters, but "nothing is a panacea. He noted that exporting still accounts for little more than 10% of the economy.

For more information or to register for the FCIB New York International Roundtable event at which Higgins is speaking next week, visit FCIB's webpage at

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www.fcibglobal.com or by clicking here.

Brian Shappell, NACM staff writer

Greece Imposes Property Tax in Desperate Bid to Avoid Default

Greece announced that it would enact a new property tax last night in a desperate last-ditch effort to avoid default. 

The debt-stricken country faces the distinct possibility of being denied an eight billion euro rescue loan from the European Union (EU) and International Monetary Fund (IMF), and is therefore scrambling to ensure the investment.  The property tax is the latest addition to the country’s ongoing austerity measures, which have sought to shore up a two billion euro budget gap.

“We must come up with something fair, socially acceptable, something that differentiates the rich from the middle class and the poor, something that can be applied immediately, that can pay off dividends quickly, that does not depend on the tax administration mechanism,” said Greek Financial Minister Evangelos Venizelos. “The only measure meeting all those qualities—a measure of direct, universal, application, although scaled in a fair way, with social features—is a special levy on real estate to be paid through the PPC (Public Power Corporation) bill.”

“Its weighted average cost per square meter is approximately four euros. This means that in the poorer areas with low price bands, people will be asked to pay a mere 0.50 euros per square meter. On the other hand, where we have luxury homes, for example in the northern suburbs of Athens, some will pay 10 euros per square meter,” he added.

Venizelos also added that the Greek Cabinet unanimously decided to cut an entire month’s salary from all elected officials of the state, in a largely symbolic gesture to already angry citizens.  “Every Greek man and woman listening to this must know that in our minds and in our souls we have every family, every unemployed person, every businessman, every farmer and every child that wants to find a different national mood and a country with open arms ready to provide them with opportunities,” he added.  “The circumstances are tough. We can make them easier if we engage in a fast and radical effort. This will be a push forward.”

EU and IMF auditors are expected to arrive in Greece in the coming days to assess the government’s progress on plugging its budget shortfall.  Markets around the world remain easily rattled and fearful of a Greek default.

Jacob Barron, NACM staff writer

Study Due Out Next Week Finds Manufacturing Optimism Still Positive

Optimism from businesses in the manufacturing sector may have fallen quite a bit since early in 2011, but third-quarter levels are still well above levels considered neutral, according to a yet-to-be released study conducted in part by the National Association of Manufacturers (NAM).

NAM Chief Economist Chad Moutray noted during a speech at the National Economists Club in Washington, DC that its study on manufacturing business optimism, to be released early next week, finds the percentage of manufactureing business with a positive future outlook at 65.4%. While well below the 86.4% posted in the second quarter and the 72.6% for calendar year 2010, it remains significantly above the 50% threshold, which is seen as good news. In 2008 and 2009, it was well below 50%.

“While there was clearly a fall, you still have a tremendous level of optimism,” said Moutray. He added that the two biggest impediments to increased optimism, according to manufacturers, was the weaker economy during the quarter and what is seen as an ongoing unfavorable business and regulatory climate. More than 60% of respondents noted both among their top issues. Perhaps the latter will get a bump from President Barack Obama’s Jobs Act, unveiled in the hours following Moutray’s speech, and a possible passage of three U.S. trade agreements (with Columbia, Panama and South Korea).

Moutray, who strongly believes three languishing Bush-era trade agreement finally will pass this year, told NACM that two areas businesses are hoping to hear more from policy-makers on in the coming months would be changes to the tax code and a more permanent extension of the research and development tax incentives set to expire later this year.

Brian Shappell, NACM staff writer

Kuehl on Speech: “Pass This Jobs Bill” – Is That Really a Good Idea?

The most realistic response to that question is probably “couldn’t hurt”. President Barack Obama’s speech Thursday night was close to what had been leaked in the days prior and, as such, it was about as bold as it could be under the current circumstances. That does not mean that this is the plan that will shove the U.S. economy back towards recovery, but there is little in the plan that could be judged controversial either. It was a speech that was long on inspiration and cajoling yet somewhat short on what could be construed as drastic remedy.

The challenge that faces the political establishment right now has been pretty clear for months. The two biggest economic issues require actions that are diametrically opposed to one another. To fix the debt and deficit the government has to impose a strict austerity plan that would involve severe cuts, revenue hikes and all manner of actions that would also result in a slowed economy. For evidence of what austerity means to a given economy, look no further than what has been taking place in Great Britain and other European nations. To shock a $15 trillion economy into substantial growth will take far more than $450 billion, especially when half of that amount is in tax cuts as opposed to direct stimulus.

The plan was as much about tax cuts and incentives for business as it was about new spending initiatives, and that was by design. This was a plan designed to be as palatable as possible to the GOP. This doesn’t means that Republicans will pass it swiftly or at all, but it will be much harder for the them to oppose this idea on its face as half of the plan involves tax cuts for which Republicans long have been advocating for.

As one would anticipate, there is substantial difference between the opinions of those who would call themselves Keynesians at heart and those who come from the more conservative side of the debate. There is also some level of consensus when it comes to some key points. The majority held that tax cuts will not really do much until later in 2012 and that too little of the plan is short-term while too much of it will manifest in 2012, at the earliest. The view of most economists polled was that the plan was better than expected in terms of balance and size but that it was still far too limited to have much of an impact.

There will be far more evaluation of the plan in future weeks but for the moment the economists fall into three camps on the plan. The first group essentially is committed to the notion that the government has to suspend concern about the debt and deficit until the economy is back on a healthy growth curve. The second group of economists hails from the more conservative side of the debate and wants the focus to stay on debt and deficit reduction over all else. They assert that austerity has to be the focal point despite the very real pain that comes from such an effort. Then there is the third group that takes the position that something is better than nothing. They agree with both of the other positions in part: with the first group in asserting that it is too little to make a real difference and with the second group that it makes the debt and deficit issue that much harder to deal with.

Source: NACM Economist Chris Kuehl

Support for Venue Reform Grows Following Judiciary Hearing

The bipartisan nature of H.R. 2533, the Chapter 11 Bankruptcy Venue Reform Act, was on display this morning during a hearing on the bill in the House Judiciary Committee.  Lawmakers from both sides of the aisle asked a small group of witnesses an array of questions, and regarded the arguments against the bill, proved by lone dissenting witness Professor David Skeel of the University of Pennsylvania Law School, with a great deal of skepticism.

Held in the Committee’s Subcommittee on Commercial and Administrative Law, chaired by Rep. Howard Coble (R-NC), the hearing offered the bill’s sponsors and supporters to lay out their qualms with current bankruptcy venue statutes, which allow debtors a strikingly broad array of choices of where to bring their case.  “These rules allow a large Chapter 11 debtor to choose their venue…This leads to some strange results,” said Coble in his opening statement.  “The Los Angeles Dodgers, an entity with Los Angeles in its very name, filed in Delaware.”

Coble mentioned a complaint that would arise again and again in the hearing, noting that the leeway that Chapter 11 debtors have in where they file their bankruptcy case often comes at the expense of smaller creditors.  “Small creditors must defend preference claims filed in a remote jurisdiction,” he said.  “[They’re] sometimes left in the dust.”

Judiciary Committee Chairman Lamar Smith (R-TX), one of the bill’s original sponsors, noted in his opening statement that H.R. 2533 would not only correct provisions that disenfranchise smaller creditors, but also restore the Constitution’s original intent for the nation’s Bankruptcy laws.  “The current Chapter 11 venue rules allow many corporations to forum shop for a venue with favorable judicial precedent for the business.  For example, a nationwide retailer may prefer to file in Delaware because of the Third Circuit’s well-known rulings on the treatment of unpaid rent in bankruptcy.  At the same time, a business with many unionized employees can avoid filing in Delaware to avoid Third Circuit precedent on collective bargaining rights in bankruptcy,” said Smith.  “The Constitution instructs Congress to enact uniform bankruptcy laws.  While courts of appeal are permitted to interpret Bankruptcy Code provisions differently, Chapter 11 debtors should not be able to leave their home districts and shop for a forum whose judicial precedent on bankruptcy law they happen to prefer.”

Three of the four witnesses agreed with the Chairman, and supported the bill, namely Peter Califano, partner with Cooper, White & Cooper who testified on behalf of the Commercial Law League of America (CLLA), Hon. Frank Bailey, chief judge of the Bankruptcy Court for the District of Massachusetts, and Professor Melissa Jacoby, of the University of North Carolina School of Law. 

“The consequences of corporate bankruptcy are most profound in the communities where the debtors’ principal assets are located,” said Califano.  “If bankruptcies are filed in remote districts, the parties with the most familiarity with the debtor’s operations might be cut off in the process.”  Bailey and Jacoby agreed with Califano, with Bailey noting that “the current venue statute undermines confidence in the bankruptcy system,” and Jacoby observing that “the current laws really do risk being perceived as being procedurally unfair.”

Subcommittee Ranking Member Rep. Steve Cohen (D-TN) added that the current venue rules ultimately harm “small creditors, employees and other affected stakeholders,” and that “this bill [H.R. 2533], that’s bipartisan, offers what we think are common sense changes to bankruptcy venue statutes.”

NACM has publically voiced its support for H.R. 2533, and has long advocated for sensible changes to the Code’s rules governing where a debtor may file.  To urge your member of Congress to support the Chapter 11 Bankruptcy Venue Reform Act, look up your congressperson’s contact information here (be sure to rely on your company’s address rather than your own home address), then visit NACM’s Advocacy page to download a form letter that you can personalize to increase its effect on your representative.

If you have any questions, contact Jacob Barron, NACM staff writer and government affairs liaison, at jakeb@nacm.org.

Jacob Barron, CICP, NACM staff writer



Fed Beige Book Finds Malaise

A roundup of economic activity completed about every six weeks by the Federal Reserve found that about half of its 12 districts were experiencing slow or stagnant economic growth. There were even some reports of slowing growth during the period in some places, including the Philadelphia district, during the period that began in mid-July and ended in late August.

The Federal Reserve's Beige Book report contained a bit of the same old story: commercial and residential real estate were considered weak, an employment growth rebound has yet to come to fruition and business loan demand is far from robust. What is of note is the continued slide of the manufacturing sector, which had carried economic growth during much of the last two years. Fed contacts illustrate that conditions remain mixed, but the pace of activity has slowed in many districts, including several key ones. Notably, the pace has dropped off in the key New York, Philadelphia and Dallas districts. Districts such as Boston and Dallas also noted a decline in demand from European-based customers. However, at least four districts (Minneapolis, Kansas City, San Francisco, St. Louis) reported increases, albeit mild ones.

Additionally, contacts told the Fed that an uptick in economic uncertainty and the rollercoaster-ride of the stock market has caused them to downgrade their near-term outlooks. In a spot of good news, it appears credit quality has improved, and availability has not worsened, the Fed noted.

Meanwhile, the agriculture sector, like most others, appeared to be a mixed bag as well. Hot and dry weather has been causing problems for producers in the Chicago, St. Louis, Kansas City and, especially, Dallas districts. Still, those who’ve weathered overly dry or, on the opposite end, wet conditions from Hurricane Irene, have high values for their products.

Brian Shappell, NACM staff writer


BRICS Holding Steady on Ratings, But Maybe Not Agency Status Quo



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Three of the four BRICs Nations received positive news from various “Big Three” ratings agencies over the last two weeks, with the latest coming Monday. Meanwhile, an agency in the fourth member, with ties to the state, has reportedly been reaching out to ratings agencies in fellow BRICs nations and beyond to test the waters for creating a more powerful competitor to the three dominant and highly criticized U.S.-based ratings agencies.

On Monday, Moody’s Investment Services affirmed the rating for India’s foreign currency and local currency debt levels, while setting its credit outlook at stable. Moody’s also noted that, despite fears of some level of cyclical downturn in the nation, its economic diversity likely was strong enough to absorb the blow without significantly negative ramifications.

The Moody’s report came just days after Fitch Ratings affirmed Russia’s long-term former and local currency issuer default ratings and noted they have a positive outlook. Despite Russia’s reputation for corruption and over-dependence on few sectors (natural resources/oil production), Fitch highlighted that the nation gains balance from a strong balance sheet and improved exchange rate flexibility. Additionally, unlike Standard & Poor’s concerns noted in the weeks prior when that agency upheld Russia’s credit ratings, Fitch appeared unconcerned with upcoming Russian elections, intimating that former president Prime Minister Vladimir Putin has maintained a high level of power and return to his previous position. Thus, there should be few disruptions or significant structural reforms.

For Brazil, S&P previously (Aug. 25) heralded the newfound economic stability of Brazil by announcing it would hold the nation’s outlook in the “positive” category despite concerns of inflation and the recent regime change. S&P also held its investment and foreign-currency ratings stable, though they are considered low. It has been intimated that Brazil could see an upgrade to one or both before year’s end.

Meanwhile, each of those three nations could play a role in a sort of credit-ratings coop reportedly being considered by China-based Dagong Global Credit Rating Co. Dagong reportedly is considering enlisting the help of ratings agencies in other BRICs nations as well as some in South Korea and even Europe to create a direct competitor to the U.S.-based agencies. Each of the three has been criticized tremendously and repeatedly for its failings in ratings outlooks during the run-up to the global economic downturn as well as for some of its ratings downgrades in recent months, especially of sovereign credit ratings in European nations. The agency notably downgraded the U.S. soverign credit rating this summer during the week following S&P's now infamous decision to do so.

Brian Shappell, NACM staff writer

UPDATED: Solar Business Niche Suffers Yet Another Major Outage

(EDITOR'S NOTE: Solyndra LLC officially filed for Chapter 11 in U.S. Bankruptcy Court in Delaware early Tuesday. Story originally posted on 9/1/11)  As predicted in NACM’s eNews more than a month ago, “green” business has become far from gold, especially where solar is concerned. Just last Monday, NACM covered the SpectraWatt Inc. Chapter 11 bankruptcy filing. One day later, yet another company announced it was with certainty heading down the same path.

Solyndra LLC, a solar energy products firm which gained notoriety during well-publicized visit there by President Barack Obama in 2010, announced plans to file for bankruptcy protection as early as next week. It marks the third solar in a month to official file for or announce Chapter 11 in the last month, with more potential struggling firms in the pipeline. Like SpectraWatt shortly before them, the company’s high-tech solar product offerings had become “noncompetitive” as Asian manufacturers, especially those based in China, continue to deeply undercut the firm and its competitors on pricing and overhead. Even significant financial assistance in the form of federal programs could not help enough. The problems are fueling speculation about widespread, near unrecoverable problems emerging in the solar business niche. More than 1,000 Solyndra employees are expected to be out of work almost immediately as a result of the company’s proverbial white flag.

As previously noted, it’s a prediction Credit Management Association's Mike Joncich make in an interview for stories in NACM's eNews and. the new issue of Business Credit Magazine. He noted the industry's problems go deeper than just an economic downturn/slow recovery and include serious over-saturation:

"There was over-investment in those industries [during the boom], and a number of companies are going to fall out that didn't have the right ideas or right business models to survive,” said Joncich. “Credit managers have to be aware of such phenomena."

Earlier this month, Massachusetts-based Evergreen Solar filed for Chapter 11 bankruptcy protection and, months before that,  Maryland-based BP solar operation halted its activity in favor of relocation abroad to save costs.

Brian Shappell, NACM staff writer

Pennsylvania Capital in Limbo on Second Failed Debt Plan Vote

For the second time in as many months, Harrisburg’s city council narrowly voted against adopting a debt plan designed to keep the struggling municipality out of Chapter 9 bankruptcy. And the move could very well leave the city unable to meet debt obligations coming up mid-month, including payroll.

Opponents of the latest plan championed by Harrisburg Mayor Linda Thompson as an alternative to filing for municipal bankruptcy protection, continued to criticize plans they believe put investors on better footing than rank-and-file residents when dealing with the Pennsylvania capital’s debt. Harrisburg officials continue to pursue the long-shot options of landing significant short-term loans to push the problem off, at least temporarily.

Thompson had offered up a debt plan slightly different than different from the one proposed by the state, both with the aim of preventing a massive default. But council members were resistant to ideas such as a significant property tax hike and the selling of city-owned parking garages and proverbial money pit in the form of a trash incinerator, which was included in both plans. The failed trash incinerator project, sold to voters as a potential cash-generator, stands as the primary cause of Harrisburg's massive debt problems.

Pennsylvania state lawmakers hurried earlier this summer to pass S.B. 907, which would strip any third-level city—Harrisburg fits that distinction—of state funding if it files for bankruptcy before July 2012. Some city lawmakers remained unfazed in the belief that bankruptcy remains a viable option that should be explored, despite the ramifications. State officials appear concerned that a Chapter 9 filing by Harrisburg would sully the reputation of the state capital and increase the cost of borrowing for the city in the future, as well as many other similar-sized Pennsylvania cities.

Brian Shappell, NACM staff writer

CMI Numbers Continue to Slip, but There Are Silver Linings

The Credit Managers’ Index (CMI) for August hasn’t been this low in more than a year—falling from July’s 53.9 to 52.7—and is now tracking at levels last seen in 2008–2009. “The news this month is not good and comes as no shock to anyone who has been tracking the data coming from all directions,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). If there is any good news, it is that the combined number has not yet fallen below 50, the threshold separating contraction from expansion. But the index of unfavorable factors fell to contractionary levels. The last time the unfavorable index was this low was in the 2009 period when the recession had just started to show signs of easing. The fact that the data was not worse this month than it was is probably worth noting as most of the other indices released in the last few weeks suggested there might have been an even steeper decline.

Kuehl said the best news in this month’s data is found in the favorable index. Here the data barely changed, going from 58.9 to 58.1. This is still much lower than most of the last year, but the precipitous collapse that took place in the companion part of the overall index did not take place here. There was even some improvement in the amount of dollar collections, while declines in the sales category were slight, from 60 to 59.2. “The most interesting aspect of the data is that extension of credit actually improved in the middle of all this gloom and doom. The fact that favorable factors have improved slightly or remained stable provides some hope that conditions will improve in the coming months,” said Kuehl. “There is still demand and business progress, but the crisis in the overall economy has been putting pressure on the finances of many companies.”

Upon examining the unfavorable factors, it is striking that the problem is primarily one of sudden business stress and failure. The biggest declines were in accounts placed for collection and dollar amounts beyond terms. These are signs of real distress among customers, but it is equally significant that filings for bankruptcies did not increase dramatically and there was not an acceleration in the rejection of credit applications. The divergence in these factors is particularly interesting and informative. While speculative, one could look at this data and conclude that companies got in trouble in the last month or so because of a sudden drop in business after anticipating better times. Evidence from earlier in the year showed that companies across the board were anticipating better days in the second half of the year and many were trying to prepare for this with expansion plans. This anticipated economic growth did not come to pass and these companies swiftly got into trouble.

If there is a small silver lining to all this, it is that the level of bankruptcies has not risen at the same pace. That means one of two things. If the economy gets back in gear in the next couple of months, companies struggling now will have some time to gain control of their budgets and be able to avoid sliding further toward collapse and ultimately bankruptcy. If the economy doesn’t catch fire to some extent in the near future, the bankruptcy rate will start to climb and the index will reflect it. The other mildly encouraging piece is that the rate of rejection for credit applications was not markedly different from last month. There is still credit available to customers that are bucking the trend. This is not like the situation at the end of 2008 when the entire credit system came screeching to a halt and even the best of companies were denied access.

The data this month is mixed but with a decidedly downward slope. The CMI remains in expansion territory, but is holding on to that status by a thread. There may be another month of essentially flat growth in store, but after that the economy will begin to tilt in one direction or another. If there is no real improvement in some of the fundamentals, the index will reflect continued deterioration. There is some resilience evident in the index numbers as the favorable categories are holding their own. The sectors that will drag the whole index further under include those that are most dependent on the decisions that companies made when they were expecting some solid economic growth by now. The credit requested made sense at the time, but now there is some serious concern as far as what happens next if the growth rate remains mired in the predicted 1% to 1.5% region.

The online CMI report for August 2011 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.