New Credit Managers̢۪ Index Confirms Third Spring Slump in As Many Years


The latest Credit Managers’ Index (CMI), now available at NACM’s website (www.nacm.org), finds an manufacturing and service sector swoons in play yet again in 2012 despite what was seen as strong potential at the onset of the year.

The main sense provided by the new CMI statistics is that consumers are feeling tentative. This is compounded by what NACM Economist Chris Kuehl intimates are significant secondary scenarios contributing to the “spring swoon:” those being continued concern over the European financial crisis, high domestic unemployment and inflationary pressure. Granted, conditions have not deteriorated to a point that calls for panic on the part of businesses and credit professionals.

“The gains made in the last year have largely been erased, and now the question is whether there will be a swift and significant comeback,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “The [CMI’s] drop from April to May is not quite as steep as the one from March to April, but the decline is worrisome nonetheless.”

The CMI report for May 2012 is available online now and contains full commentary, complete with tables and graphs. CMI archives may also be viewed online.

-Brian Shappell, CBA, NACM staff writer

Senate Judiciary Approves Small Business Reorganization Bill


The Senate Judiciary Committee approved a bill last week that would aim to make it easier for small businesses to properly reorganize.

S. 2370, the Small Business Reorganization Efficiency and Clarity Act, was reported without amendment on a unanimous voice vote during an executive business meeting. As reported in last week's edition of NACM's eNews, in addition to imposing a number of interesting research requirements on various government agencies, the bill would also double the time by which a court must confirm a small business reorganization plan, from 45 to 90 days, and give courts the authority to compel a debtor to self-identify as a small business.

A reorganization process specifically designed for small businesses already exists within the Bankruptcy Code, but debtors can choose whether or not to use it, regardless of how small they are. S. 2370 gives courts the authority to dismiss a debtor's case for failing to identify itself as a small business debtor. NACM suggested such a change in its previous work with S. 2370 sponsor Senator Sheldon Whitehouse (D-RI).

In remarks made during the bill's markup, Whitehouse described S. 2370 as a modest group of agreed-upon amendments that gives courts and debtors more time to confirm a plan, while also eliminating "catch-all" reporting requirements that served no useful purposes. Cosponsor Senator Chuck Grassley (R-IA) and Senator Tom Coburn (R-OK) agreed with Whitehouse's characterization of the bill, with Coburn describing it as a good, common sense compromise.

The Senate is in recess until next week. It remains unclear when the full chamber might take up S. 2370, or if the House Judiciary Committee has any plans to take up a similar bill, or use the legislation as a vehicle for other related purposes.

Stay tuned to NACM's eNews for ongoing updates on this bill and NACM's other legislative priorities. If you have any questions or comments about NACM's Advocacy program, email Jacob Barron, CICP at jakeb@nacm.org.

- Jacob Barron, CICP, NACM staff writer

Supreme Court Upholds Credit-Bidding Rights


In a quicker-than-expected turnaround, the Supreme Court ruled unanimously to uphold the rights of secured creditors in Chapter 11 bankruptcy-related assets sales.

The high court, which heard arguments regarding differing credit bidding decisions in the lower courts, noted that a Chapter 11 “cramdown” plan could not be confirmed if a secured lender, often a bank, is denied the right to use debt owed to them at an assets auction in lieu of cash. The timing comes as a surprise, as a decision was not expected for several weeks, as does the unanimous vote (with Justice Kennedy not taking part in the decision) since Chief Justice Roberts expressed the importance of "the specific over the general" when analyzing the debtors’ point of view from the bench in late April.

The court opinion, deliver by Justice Scalia and made public Tuesday, essentially threw out verbiage technicalities on which the petitioner was basing its arguments and on which the Third Circuit based a previous decision that cut at credit bidding rights.

“The general/specific canon is not an absolute rule, but is merely a strong indication of statutory meaning that can be overcome by textural indications that point in the other direction,” Scalia wrote. “The debtors point to no such indication here.” Scalia’s take of the petitioner’s argument included characterizations such as “surpassingly strange” and “irrelevant” as well as one that hung its argument on procedural technicalities more so then “substantive” requirements of federal bankruptcy law.
The case in question was RadLAX Gateway Hotel LLC v. Amalgamated Bank. At stake was whether creditors would be able to use the value of their secured debt as opposed to straight cash, a process called credit bidding, as the U.S. Bankruptcy Court for the Seventh Circuit ruled in RadLAX. However, that view is competing with contrary decisions out of the U.S. Bankruptcy Courts for the Third and Fifth Districts, which preceded it and called to limit credit bidding.



Petitioners (RadLAX), argued that, in a case like RadLAX, the concern lies in the ability of getting other non-secured bidders to even "show up" for an auction if they have knowledge that a secured creditor can best the bid without offering up any new cash, instead of just what is already owed to them. In addition, Neff said federal law notes that the use of the word "or" in one of the clauses guiding bankruptcy actions says the sale can go on without the right of a credit bid if the "indubitable equivalent" of their claim is realized.



Such arguments drew critical reactions from a majority of the justices, who intimated that the argument against credit bidding runs contrary to the essence of the Bankruptcy Code and the intentions of the U.S. Congress.



Brian Shappell, CBA, NACM staff writer
 

China's Engineered Economic Slowdown Could Drag on Global Recovery


China's State Council acknowledged the "increasing downward pressure" facing their economy this week. In a statement, the Council stressed that more attention would be paid by policymakers in the future on establishing "stabilizing economic growth," which is to say sustainable economic growth that still maintains adequate demand levels for the world's second-largest economy.

In the first quarter of 2012, China's gross domestic product (GDP) growth slowed to a still-meteoric 8.1% from 8.4% in the fourth quarter of 2011. While this has raised concerns about further deceleration at a time when the global economy needs it least, the slowdown is taking place by design. The Chinese government set the full-year GDP growth target at 7.5% for 2012, marking the first time in eight years that this target has been under 8%.

China's attempts to engineer a soft landing for their economy, although necessary from a sustainability perspective, have come at a less-than-advantageous time for the global economy at large, and particularly for the manufacturing sector. "The Chinese have continued to try to slow things down," said NACM Economist Chris Kuehl, PhD. "That has reduced their demand for goods from the U.S. as well as from other nations that the U.S. sells to. The export business has been critical for the U.S. manufacturer and it therefore causes some heartburn when those foreign markets seem to stumble."

Overheating seemed to be a real danger to China's continued regional economic dominance near the end of last year. "Inflation was hurtling out of control with a real rate over 6% and food inflation close to 12%," said Kuehl, who noted that a self-imposed slowdown designed to mitigate these effects seems to have been largely effective. "The inflation rate has fallen back to less than 4%," he noted, "but now the question is whether China will desire a resumption of their traditional growth rates, and whether that is even possible."

"As long as China is resisting the urge to stimulate growth, they will not be playing the role of economic engine for the region, and that slows down a good chunk of the global economy," Kuehl added.

To learn more about global economic trends and how to grow your company through exports, visit FCIB's website at www.fcibglobal.com.

-Jacob Barron, CICP, NACM staff writer
 

California Blueprint for Delaying Muni Bankruptcy Working?


A California community that once seemed destined to head into municipal bankruptcy will continue working with its creditors in a process designed to force stakeholders to the negotiating table. If the process proves helpful, it could give other states with communities facing insolvency some ideas on how to slow a potential rash of filings.

Stockton officials agreed with all significant parties involved to extend a mediation process designed to delay, if not keep them out of a municipal bankruptcy filing. The extension of mediation refers to the mandatory 60-day process outlined by a 2011 California law that aimed to keep struggling municipalities from hastily entering into a Chapter 9. Mayor Ann Johnston believes the development marks “a good sign.”

“It means that our creditors understand our fiscal circumstances, and it indicates that they believe that it is worth the investment of time and resources to work toward a solution,” the mayor said. “We are doing everything in our power to avoid bankruptcy. Mediation is our last and best chance.”

Stockton officials have become the first city in California to begin going through the newly mandated mediation process. Former U.S. Bankruptcy Court Judge Ralph Mabey began in the role of mediator in Stockton’s debt negotiations in March. If eventually filed, Stockton would unseat Jefferson County, AL as the largest municipal bankruptcy filing in U.S. history.

-Brian Shappell, CBA, NACM staff writer

Hilgers Joins Westhuis as Second Euro-based FCIB Growth Award Winner


In what came as a shock to perhaps only the winner herself, Regine Hilgers, CICP, EMEA credit controller based in Germany for Ashland Specialty Ingredients, was presented with FCIB's Service Development and Growth Award as the Annual International Credit & Risk Management Summit came to her native Germany in May. Flanked by the first winner of the award – Mannes Westhuis, CICP, of Bierens Collection Attorneys – as well as NACM's Robin Schauseil and FCIB's Noelin Hawkins; the seemingly tireless Hilgers accepted the distinction designed to recognize the valuable contributions volunteers are making to further grow and develop FCIB’s member services and to encourage more people to serve. The award program is a way to thank and honor FCIB members who, by their demonstrated commitment and example, inspire others to engage in volunteer service.



Westhuis, the first ever recipient in 2011, said he hopes the achievement by himself and Hilgers – as well as Luis Noriega, who was the first North American-based recipient last year  -- helps inspire credit professionals to do more to support the profession and FCIB as an organization.



"The award says you can combined the 'what's in it for me' – getting in touch with leads, customers – with social and professional responsibility,” Westhuis told NACM. “It can go hand-in-hand, together. If you don't support an organization like FCIB, the credit profession won't grow and won't get better."



Brian Shappell, CBA, NACM staff writer

Japan Takes Unexpected Ratings Knock from Fitch over "Leisurely" Behavior


In line with a March Business Credit article outlining the vast troubles facing Japan, Fitch Ratings sent a definite message that it believes the Japanese should be moving at a faster pace in addressing its growing debt concerns this week.

Concerns over Japanese debt and growth -- as noted by experts like Adolfo Laurenti, deputy chief economist at Mesirow Financial; Masaaki Kanno, of JPMorgan Security Japan Co.; and NACM Economist Chris Kuehl in Business Credit -- eased slightly as a surge in the trade surplus was recorded just before the end of March. But this week’s Fitch downgrade has put Japan back into prominence in the world media in the most dubious of ways…at least for those who still value such analysis from U.S.-based ratings agencies that have faced much criticism in recent months and years.

Fitch downgraded Japan's long-term foreign and local currency issuer default ratings to 'A+' from 'AA' and 'AA-.' They are the lowest ratings for the nation out of the big three raters, which also includes Standard & Poor’s and Moody’s Investment Services.  The firm also listed both outlooks as “negative.”
“The downgrades and negative outlooks reflect growing risks for Japan's sovereign credit profile as a result of high and rising public debt ratios," said Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch. "The country's fiscal consolidation plan looks leisurely relative even to other fiscally-challenged, high-income countries, and implementation is subject to political risk." Fitch added that Japan's gross government debt is projected to approach 250% of GDP by early 2013, “by far” the highest of any developed economic power.


Endemic issues Japan is facing include the following:



  • One word: debt…the debt-to-GDP ratio presently exceeding 200% is nothing short of astonishing.


  • The nation must figure out how to address energy needs, especially with an expected, perhaps unavoidable movement away from nuclear power, at least in the short term.


  • The export sector faces massive disadvantages compared to other regional nations’ manufacturing sectors, especially China, because of Japan's overly high, even troublesome, value of its currency (the yen) as investors continue to remove money from the euro.


Brian Shappell, CBA, NACM staff writer

Spain Continues to Dominate List of Sovereign Concerns at FCIB Hamburg Event


The struggles of nations like Greece and Portugal have been well documented as the European Union’s 2011/2012 economic downturn rages on. And, like NACM sources based in the United States, experts in economics, finance and credit management attending FCIB’s Annual International Credit & Risk Management Summit in Hamburg last week all appeared focused on one area of the map: Spain.

At the onset of the conference, Ducroire Delcredere Country and Sector Risk Coordinator Ben Deboeck expanded upon points he made previously to NACM’s eNews noting the implications of a continued downward spiral in Spain would be “catastrophic,” and far outpace the red herring that has been the Greece story.  With demand down throughout the EU, regions having vast autonomy that is hard for the Spanish capital to pull back on and unemployment surging to near 25% with youth figures exceeding 50%, things look bleak in the third most important economy on the continent.

“Spain’s banking problems pose the largest threat to public finances," he said. “It’s hard to see where robust growth should come from in the coming years.”

However, all is not lost just yet. Deboeck mentioned that, like Italy, Spain has done a good job to date meeting austerity/economic reform targets. In addition, there are examples where high-debt nations that made massive changes to policy emerged strong eventually. To wit, few save for Germany are in better shape presently than the Netherlands, a perennial debtor nation even during periods of last decade that is now in somewhat of a catbird’s seat. In addition, Germany consumerism could play a role in healing some problems.

“Greed can be good, as long as it's German consumer greed; It would spike demand for products,” Deboeck said.

Meanwhile, panelists Silvina Aldeco-Martinez, of S&P Capital IQ, and Jane Johnson, of Atradius, cautioned over analyzing big-picture, “simple” sovereign ratings without looking into things like intra-country regional happenings as well as established trade relationships. There can be low-ranked countries from a sovereign ratings standpoint that have some well-performing regions, and vice-versa.

“Between the good, you can always find a little bit of bad,” said Aldeco-Martinez. “In between the bad, you’ll find a little bit of good.”

Brian Shappell, CBA, NACM staff writer



Note: Business and credit issues stemming from global economic conditions in Spain and many other nations will be on full display at this year's Credit Congress, including a June 13 education session dubbed "An Uncertain Global Economy and Its Effect on Credit," among many others. For more information on or to register for Credit Congress, being held June 10-13 in Grapevine, TX, visit http://creditcongress.nacm.org/.


 

Harrisburg City Council Loses Bankruptcy Appeal


The U.S. Third Circuit Court of Appeals ruled against the Harrisburg, PA city council this week, dismissing their attempt to restart Chapter 9 bankruptcy proceedings.

The debt-saddled city council petitioned for Chapter 9 protection in November of last year, but its filing was rejected by U.S. Bankruptcy Judge Mary France, who noted that it wasn't authorized by Pennsylvania state law. The city council appealed the ruling, but the Third Circuit confirmed France's original decision.

Harrisburg is insolvent due in part to a $300 million retrofit to the city's trash incinerator that failed to generate enough revenue. The city's council hoped to use the Chapter 9 process to fend off creditors demanding payment and restructure their debt, but the state government, Harrisburg Mayor Linda Thompson, Dauphin County—in which Harrisburg is located—and now the state's Bankruptcy and Appeals Courts have either opposed or rejected the council's bankruptcy filing.

The council can request a new hearing on their appeal, or re-file their Chapter 9 petition in July, should they win support from Mayor Thompson.

Harrisburg's insolvency saga most recently took a turn for the uncertain when state-appointed receiver David Unkovic resigned from the position with almost no notice, citing potential political and ethical issues related to the incinerator project. In response, Pennsylvania Governor Tom Corbett appointed a new receiver, retired U.S. Air Force Major General William Lynch, who will take over Unkovic's authority to impose a financial recovery plan on the city. Confirmation of Lynch's appointment will take place at a hearing in a state court later this month.

- Jacob Barron, CICP, NACM staff writer

Chapter 9 bankruptcy is just one of many topics to be covered by Bruce Nathan, Esq. of Lowenstein Sandler PC in "Bankruptcy 2012: What's Hot, What's Not!," one of his presentations at this year's upcoming NACM Credit Congress. To find out about this, and other exciting educational sessions on this year's program, click here.
 

Greece's Cold War History Illuminates Current Crisis


Greece will go to the polls on June 17 for the second time in as many months. In all likelihood, voters will lend even more credence to the Syriza leftists' protest against austerity, committing what NACM Economist Chris Kuehl, PhD described as "an act of self-destruction based on principle."

As hard as European leaders have tried, the depth of Greece's woes has yet to be understood by her people. This isn't all that shocking, as every country has its fair share of deluded voters. What is troubling, however, is that Greek political leaders, namely those in the Syriza party led by leftist firebrand Alexis Tsipras, share the people's willful rejection of the reality their country now faces: implement austerity measures or face economic doom.

History, Kuehl noted recently, offers an explanation for this attitude. "The Syriza position is that all Greece has to do is refuse the austerity plan and the Europeans will balk since they will do anything to keep Greece in the euro zone," he said. "This seems a ludicrous position, but is rooted in historical reality."

During the Cold War, Greece used its leverage as a post-World War II battleground state to bargain its way into profligate government spending. By threatening to join the other Balkan states that accepted roles as Soviet surrogates, Greece was able to get whatever it wanted from western political leaders. "Greece did not really qualify for membership in the euro zone but the powers that be looked the other way every time it was suggested that refusal would tilt Greece toward the USSR," said Kuehl. "They defied nearly every European demand made on them by simply threatening to bolt to the other side…That was the tool Greece used to bolster its financially inept system, and that is essentially what Syriza is trying to do now."

Now that the USSR is no more and European sympathies toward Greece have all but evaporated, this position has gone from being merely anachronistic to practically suicidal. "The bluff is very likely to be called and the Greeks will be left with no position to play from," said Kuehl, noting that the popular position among Greeks, held by the Syriza party, to reject austerity measures equates to a "mad act of financial self-immolation that condemns the country to life as an isolated third-world state clinging to the edge of a Europe that seems more than willing to be done with the Greeks."

Jacob Barron, CICP, NACM staff writer

Call it Outsourcing or Call it Offshoring, Shared Services Centers En Vogue among EU-based Companies


Though outsourcing has its detractors in the United States and pro-labor countries because of protectionism and/or grim economic prospects, many international credit professionals at FCIB's Annual International Credit & Risk Management Summit in Hamburg still rely on a shared services center or have more regularly come to establish their own new roots working in one.

FCIB Board Member Martine Zimmermann, credit manager at F. Hoffman-La Roche in Switzerland, noted many in her industry have centers in places like India and some Eastern bloc countries. However, having faced uncertainties, with the most notable ones being salary increases and frequently changing staff, she admits some colleagues are not quite as sold on it.

"This is especially an issue in India, where its known escalation as a key emerging economy is forcing a change in demographics, or at least demand from those who want to move up a rung amid newfound wealth, or for some, a livable wage," one credit executive at the conference noted during a question-and-answer session that intimated it might not be the right time to outsource anything more to India. "But there are still plenty of Asian and Middle Eastern areas drawing attention for the same reasons India did a few years ago: significant cost reduction."

Meanwhile, FCIB Board Member Henk Swinnen, of Netherlands-based DSM Shared Financial Service Center, defended the use of shared services centers. He noted," let's say the average rate is 7000 euros—if you increase it 10% per year, it's still much cheaper than Holland, and northern Europe." He added that his company was not outsourcing, "we're offshoring," and noted that after 10 years of use, a shared service center has been very positive.

Katarzyna Wawro of Hitachi Data Systems noted that she has been working in a shared service center, adding that, like many others, that satellite office of a foreign corporation started small and expanded after finding success. "Initially, we only did simple processes. Now everything for managing credit is there and we are doing all collection for Europe, Canada and the U.S.," Wawro said.

Not every delegate at the summit was without serious concerns, however. For example, panelist Raul Davila of New York-based Bamberger Polymers was among those who said complications with moving functions of the business farther and farther away from the main credit department hub can easily arise and oftentimes be harder to fix when thousands of miles away, or when they're operating on significant time differences, or in a vastly different cultural landscape.

- Brian Shappell, CBA, NACM staff writer



Look for more coverage on FCIB's recently-concluded International Credit and Risk Management Summit in NACM's eNews, on NACM's blog, and in Business Credit magazine!

Colombia FTA Enters into Force


The U.S.-Colombia Free Trade Agreement (FTA) officially entered into force yesterday.

The agreement is expected to increase U.S. exports to Colombia by more than $1 billion annually, while increasing U.S. gross domestic product by $2.5 billion and supporting thousands of new jobs. More than 80% of U.S. exports are now immediately granted duty-free access according to the terms of the FTA, while remaining tariffs will be phased out over the course of the next decade.

"Colombia is dropping tariffs on our manufactured and agricultural goods and that means the door is opening for American workers and businesses to grow," said Senate Finance Committee Chairman Max Baucus (D-MT). "This is a major economic win that levels the playing field for American workers and businesses."

Baucus noted that U.S. companies have lost Colombian market share recently since, in the years between the U.S. FTA's creation and its approval, Brazil, Argentina and Canada have all signed their own FTAs with Colombia. "Colombia's economy is growing quickly and it's a lucrative market for the world-class products made here in the U.S.," he added. "This trade deal is worth a billion dollars in new U.S. exports and thousands of new jobs at home, and that's just the kind of boost our economy needs."

Business groups also lauded the FTA's entrance into force. "Colombia has been the world's greatest turnaround story of the past decade," said Thomas Donohue, president and CEO of the U.S. Chamber of Commerce. "Given the Colombian economy's rapid growth, this landmark agreement will open the door to exciting new business opportunities and job creation in the U.S. and Colombia."

U.S. exports to Colombia have already risen four-fold over the past decade, topping $14 billion last year, according to the Chamber.

Jacob Barron, CICP, NACM staff writer
 

FCIB Hamburg Event: Middle East and its Similarities with U.S., EU a Hot Topic


As would be expected, FCIB’s annual International Credit and Risk Management Summit kicked off with a lot of talk of the problems in the European Union. Notably, doomsday predictions about Spain and of a potential Greek exit from the Euro—which have been covered in NACM's eNews and blog—were front of mind. Also of particular interest during the conference, currently ongoing in Hamburg, was talk of conditions in the Middle East.

During a discussion looking at the region, and trade therein, one year removed from the Arab Spring uprisings, panelists surprised some in the crowd by outlining a perhaps overlooked fact about Middle East-based businesses and their proprietors amid the many perceived cultural differences: that there are actually more significant commonalities with so-called “traditional” businesses in the West than often depicted.

“We have exactly the same types of worries; we have the same concerns about the future, our kids, etc.,” said Ferda Efe, a senior director with Ashland Specialty Ingredients in Istanbul. “They’re really not that different from the rest of the world. We are all one world now, in the end.”

Additionally, panelists poked some holes in notions that Middle Eastern businesses, officials, salespeople or credit professionals are so culturally unique for taking the time to build the trust level of a relationship, having distaste for when someone overpromises but under-delivers and being dogged in negotiations. Among those three characteristics, are any of these things an American or European credit professional would NOT want?

Similarly, a presentation on Islamic banking laws/Sharia law compliance by Dr. Salman Khan generated interest, if not controversy at times, by showing that the traditional banking methods and products are similar. In fact, to become Sharia compliant with a credit agreement, a traditional product is held up as the model and stripped of things that are not considered compliant (the ability to make money off interest, things considered not in “good faith” or ethical, etc.). Additionally, Khan alleged there was “little meaningful difference between the conventional banking industry and the Islamic banking industry at present.” He characterized the differences as “cosmetic, theoretical and superfluous.”

“What has happened in reality, the facts are thus: the implantation in practice has diverged from theory to a large extent,” he told FCIB delegates. “You have a Sharia-compliant, not Sharia-based, industry paradigm. The Islamic banking and finance industry operates almost entirely from infrastructure designed for the conventional banking system. There has been no development of a tailored system. The point is Islamic banking has to fit into the platform, however that is even really possible.”

Brian Shappell, CBA, NACM staff writer

Amendment Agreement Paves Way for Ex-Im Reauthorization


The Senate is likely to reauthorize the Export-Import Bank (Ex-Im Bank) after Democrats caved yesterday to Republican demands for votes on five amendments.

While no vote was held on the legislation at large yesterday, an agreement was reached between Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) allowing a set of GOP amendments to be considered. Each amendment would require a 60-vote majority to be included in the final bill.

Given the controversial nature of the five amendments, which are geared toward handcuffing Ex-Im's operations in some way, their inclusion in the final version of the reauthorization bill is unlikely. Simply allowing them to come up for a vote, however, has quieted Republican objections. While the full legislation will also require 60 votes to proceed to the President's desk for enactment, that goal is more easily reached since the bank enjoys bipartisan support, whereas the amendments belong to one side of the aisle.

The bill, H.R. 2072, was approved by the House of Representatives last week by an overwhelming 330-93 margin. Under its terms, Ex-Im's charter, which is set to expire at the end of this month, would be extended for another three years. The bank's lending limit would also be increased from its current $100 billion to $140 billion.

Jacob Barron, CICP, NACM staff writer
 

House Approves Ex-Im Reauthorization, Senate Could Vote Today


The House voted last week to reauthorize the charter of the Export-Import Bank (Ex-Im Bank) for another three years. According to the bill, H.R. 2072, the agency will also receive an immediate bump in its borrowing limit, to $120 billion, followed by two $10 billion increases in the next two years, bringing the grand total to $140 billion.

Under the agreement, the increases are contingent on Ex-Im's default rates remaining below 2%. The Treasury Department must also submit regular reports on the bank's efforts and its negotiations with other countries to reduce or eliminate import and export subsidies.

Lawmakers approved the plan by a 330-93 bipartisan margin, with all 93 "no" votes coming from the Republican Party.

"The passage of this bipartisan legislation provides much-needed certainty and predictability to U.S. exporters and their workers by extending the bank’s authority through Fiscal Year 2014 and increasing its portfolio cap to $140 billion," said Ex-Im Chairman and President Fred Hochberg. "The bank will continue financing U.S. exports to meet increasing foreign competition and fill the void when commercial financial support is unavailable. This is a no cost jobs bill. Ex-Im Bank export financing currently supports over 1,000 American jobs every working day."

Hochberg also voiced his hopes for swift Senate approval of the bipartisan legislation, an effort that failed on its first attempt last week. Senator Jon Kyl (R-AZ) blocked a motion by Senate Majority Leader Harry Reid (D-NV) to approve the bill by unanimous consent, and instead submitted five amendments to the legislation, each designed to limit Ex-Im's activities in some way. Among the amendments are measures that would put an expiration date of May 31, 2013 on the bank's charter, limit loans, outstanding guarantees and insurance provided by the bank and prohibit the bank from financing energy projects in other countries, among others.

In response, Reid filed for cloture on the bill, setting up a vote for later today. Stay tuned to NACM's blog for updates.

Jacob Barron, CICP, NACM staff writer
 

Adelphia Settlement on Attorneys' Fees Sets "Troubling Precedent," According to ABI Journal


The Chapter 11 filing of Adelphia Communications Corp. was marred by disputes between creditors over how each would be paid. As far as the company, formerly the fifth-largest cable company in the U.S. before filing its case in 2002 as a result of internal corruption, was concerned, drastic measures were necessary.

An article in the May 2012 edition of the American Bankruptcy Institute (ABI) Journal discusses the "troubling precedent" set by Adelphia when it took an unorthodox step to shore up support for its reorganization plan: the debtors agreed to pay certain creditors their attorneys' fees if the creditors dropped their objections to the plan. "The Adelphia decision surely resulted from a genuine desire to conclude a contentious and difficult bankruptcy case under an unusual set of factual circumstances," said author John Sheahan, a trial attorney in the Office of the General Counsel in the Executive Office for U.S. Trustees, "but the practice of paying a creditor’s attorneys’ fees in exchange for plan support could quietly become more widespread after Adelphia."

In late 2010, the U.S. Bankruptcy Court for the Southern District of New York issued a decision on the payment of non-fiduciary professional fees in Adelphia. The court allowed a number of distressed investors to be reimbursed for legal fees and other expenditures spent in competing for larger recoveries from the debtor's estate. Adelphia's confirmed plan included a provision that paid the legal fees of certain creditors who had settled their plan objections, and that the court approved the fees without requiring these creditors to prove that they had made a substantial contribution to the estate.

This departs from case law and a more literal interpretation of the statute because Section 503(b)(4) of the Bankruptcy Code permits the court to award "reasonable compensation" to the attorneys or accountants of entities who make substantial contributions to the case is specified ways, as long as they can prove such contributions. "The court reasoned that Section 503 'is [not] the only way' that professional fees can be paid by the estate and relied on a little-used provision of Chapter 11 to support its ruling: Section 1123(b)(6)," which Sheahan noted was "a catch-all clause authorizing plans to contain 'any other provision not inconsistent' with the Bankruptcy Code."

Though Sheahan noted that Adelphia was an especially unique and contentious case, and that the U.S. Trustee Program officially views the decision as one that should be conservatively applied in the future, the precedent set by such a "you support my plan, I'll pay your attorneys" approach could be troubling down the road. "Whatever the merits of this highly case-specific approach in Adelphia, it provides little guidance and less certainty in future cases that may follow Adelphia's precedent," he said.

To find out how to obtain a full copy of Sheahan's article, click here.

Jacob Barron, CICP, NACM staff writer
 

Greek Elections Causing Biggest Showdown with EU-Backers Yet


Through this week’s elections, the Greek populous and opposition politicians sent their anti-austerity message and thumbed their noses at those holding the purse strings behind the European Union and International Monetary Fund’s bailout of the debt-addled nation. Other members of the EU, mostly northern, aren’t taking it lightly—and the response could lead to even greater uncertainty.

Railing against the austerity demands allowed by incumbents, neither of the two major parties—New Democracy and Pasok in Greece—were able to come close to winning a minority. This situation will cause heightened uncertainty (disruptions) in the nation and beyond over the coming weeks. The politicians who made the gains railed against any ideas for alliances and have publicly voiced rhetoric about desiring more favorable bailout conditions.

Those footing the bill, notably the Germans, aren’t amused and have answered with thinly veiled threats about delaying the planned bailout payment to Greece scheduled for today (Thursday). Worst-case scenario has Greece falling out of the Euro by some time this summer, NACM Economist, Christ Kuehl noted.

But what is the big impact on the credit industry? Perhaps the answer, for the short-term, is to do nothing except keep an eye on things very closely in the coming days and weeks ahead. Remember the basics: know your customer.

Ben Deboeck, country and sector risk coordinator for Ducroire Delcredere (keynote speaker at FCIB’s International Credit & Risk Management Summit in Hamburg from May 13-15), noted that Greek unrest rarely comes as a surprise anymore. Deboeck pointed out that bond markets barely moved.

“Nothing too surprising happened yet,” the Belgian-based Deboeck told eNews. “So, immediate consequences of the Greek elections, as well as French elections, are rather limited I'd say. More important than Greece/France is probably what is happening in Spain, with the government finally moving towards action to tackle the banking problem”.

Going forward, however, Deboeck admits the impact of sustained volatility or an increase in volatility could affect consumer and business confidence and therefore eventually, credit.

- Brian Shappell, CBA, NACM staff writer

For more information on next week’s International Credit & Risk Management Summit, including Deboeck’s keynote speech, visit www.fcibglobal.com. Additionally, check out the NACM blog and future editions of eNews for on-site coverage from the event.

Romney Trying to Flip Script on Auto Bankruptcy Storyline


Republican presidential candidate Mitt Romney has gone on the offensive to try to turn his negatively-perceived 2008 views on the auto bailout into a positive. It will take work to on his part to disengage the resulting brake that slowed his campaign efforts during the GOP primaries in states like Ohio and Michigan earlier this year.



Romney, bashed for the self-penned 2008 New York Times headline “Let Detroit Go Bankrupt,” was back on the Ohio campaign trail and proclaimed that he deserved “a lot of credit” for the rebound of the automotive industry. In his opinion piece, Romney tried to remind people that, beyond the hyper-discussed headline, he called for a “managed” and controlled U.S. automotive industry bailout, which was shepherded by incumbent President Barack Obama in 2009. The basic gist was that the president had acted on his publicly-offered advice. Romney sidestepped the fact that he opposed much of the government’s financial involvement for U.S. auto companies despite assertions from most bankruptcy experts that private investment appetite was not near strong enough during a steep downturn to have facilitated it without the bailout. They argue that liquidations would have been near-unavoidable.



Both auto industry-dependant states are key “swing states” that will go a long way in determining the 2012 Presidential Election. Romney faced a considerable image problem in both states during the primaries largely based on the ill-worded headline. The auto bankruptcy bailout almost certainly will remain a battle issue in both states through November. After all, it was the first issue Romney publicly used to engage Obama after announcing his official candidacy last year.



Brian Shappell, CBA, NACM staff writer

Credit's Role Expands at 2012 FCIB I.C.E. Conference


A common theme that emerged in nearly every session at this year's FCIB International Credit Executives (I.C.E.) conference was the ever-expanding role of the credit department. From assessing risk beyond accounts receivable, to implementing bold new productivity enhancements, credit professionals seem to be asserting themselves into numerous other functions of their companies, and presenter after presenter at the conference seemed to prove it.

Held from May 2-4 this year at the luxurious Westin Michigan Avenue in Chicago, I.C.E. offered attendees the chance to hear cutting edge, in-depth economic presentations from an elite set of presenters, along with worthy insights from professionals that shared their day-to-day responsibilities and concerns. Chief among the presentations that focused on the mutual exchange of practices between credit professionals was a productivity enhancement roundtable, moderated by honorary life member of FCIB David Marsh, CICE, CBF.

The session offered four individual credit professionals a chance to discuss specific changes they made to increase productivity in both their departments and their companies. Susan Fattore, ICCE, corporate credit manager at Heico Companies, talked about consolidating her company's 20-plus accounts receivable operating systems. After six to eight months of preparation and three years of implementation, Fattore noted that the single system now in effect improved efficiency for her and credit staff at Heico's numerous other entities. "There's no human error and it promotes better communication among the credit managers because they know which of them share the same customers," she noted. "It gives users access to information that they didn't have prior to the system."

Kelly Bates, FCIB vice chairman and director of global credit & collections at Chiquita Brands, Inc., talked about her efforts to shift her company's global credit function to a North American headquarters. Inconsistency among credit and collection practices drove Bates to push for a more centralized credit function. "At first it was rejected, but I think it was a process of elimination," she noted. "It evolved into the right decision." Now, Bates noted "our best practices were tweaked into global policies and procedures. The reporting structures are consistent and everything is managed out of our department."

Implementing a new, similarly consistent bolt-on system that focused on collections was the focus of Larry Durrant, CCE, ICCE of UPM Kymmene, Inc.'s presentation. "We had so many systems and so many practices that we needed standardize," said Durrant, noting that choosing the right system for the company was an intensive process that involved the IT, credit risk management and purchasing departments. Nonetheless, the results have offered a great deal of user flexibility. "They can pull their statements any time they want, they can track their orders and they can get their invoices," he added. "They can view their account any time 24/7 and see what's paid and not paid."

Finally, Rick Hayes, ICCE, senior manager of worldwide credit & collections at Viskase Companies, Inc., recalled his experiences at a prior company eliminating redundancies in their order management process. "There was a trade credit operation and then there was a long-term customer financing operation, and the two were throwing a lot of data back and forth," said Hayes. "There was a lot of time spent looking at the same things." By bringing in new analysts, Hayes was able to reduce deductions, headcount and take the company, as he put it, to a point "where we're spending most of our time on fire prevention and much less time on fire fighting."

After that, attendees gathered for a networking dinner and reconvened the next morning for two especially relevant presentations, the first, a global economy forecast from NACM Economist Chris Kuehl, PhD, and the second, a "Doing Business in the BRICs" panel, this time moderated by Kuehl. Previous panelists Fattore and Hayes joined Luis Noriega, ICCE, vice president of JPMorgan Chase Bank, N.A., and Norman Zusevics, credit risk manager at Shure, Inc. in a lively, attendee-led discussion of selling concerns in these economically hot countries, as well as many others beyond the scope of the presentation's title.

Between the diversity of the program and the wealth of networking opportunities that punctuated each presentation, the 2012 I.C.E. conference served as a model growth tool for credit professionals, offering answers to attendees rather than just rehashing their problems.

For more information on FCIB's educational opportunities, visit www.fcibglobal.com. And don't forget to look for pictures from this year's I.C.E. conference in the upcoming June 2012 issue of Business Credit.

Jacob Barron, CICP, NACM staff writer
 

The Quotable ICE Conference


NACM Staff Writer Jacob Barron, CICP, was on hand in Chicago for FCIB’s annual ICE Conference this week. Full reports will be posted here on Monday. In the meantime, here are some interesting points and quotes from the proceedings:

CFTC Commissioner Bart Chilton, ICE keynote speaker, calls cyber attacks "a big threat." The notable "Flash Crash" on May 6 last year was originally thought to be a result of one.

Chilton on the hard fact about oil markets:  "If you don't have speculators, you don't have a market."

PJ Bain, CEO of PrimeRevenue, on supply chain issues (among the hottest topics of the conference): "Supply chain finance breaks the linkage between when a buyer pays and when suppliers get paid."

Janet Kim, Esq., on trade compliance difficulty: "You could spend days on any of these laws.”

Panelists on BRICs: Understanding a country's history is critical as it can greatly help exporters avoid getting burned. Doing so seems to be an increasing interest, theme that developed as I.C.E. progressed.
 

Corporate Bankruptcy Totals Take a Nose-Dive


Corporate bankruptcies experienced a freefall in April, far outpacing the decline reported on the part of individuals/consumers.

Statistics prepared by Epiq Systems Inc. in accordance with the American Bankruptcy Institute found total bankruptcy filings dropped 16% from the same period last year. However, the numbers indicated commercial filings fell 25% to 5,132 for the month on an annual basis and by 9% between March and April.



“Businesses continue to cut costs to improve their financial stability,” said ABI Executive Director Samuel J. Gerdano. “As businesses remain committed to bolstering their balance sheets, bankruptcy filing rates will continue to decrease.”



However, some bankruptcy experts like Bruce Nathan Esq., of Lowenstein Sandler PC, aren’t convinced that a downward trend in bankruptcy is a situation with which creditors should become too cozy.



“Even as the economy improves, a lot of companies are going to be dealing with debt walls on debts pushed out to 2013 and 2014 by banks,” said Nathan. “I can safely predict that the trend of a decrease in filings will not last forever. Chapter 11 will increase again soon.”



Brian Shappell, CBA, NACM staff writer

Fitch Knocks China for Differences Between State, Private PMI


Although lackluster manufacturing statistics out of China and its top trade partners isn’t necessarily reason for alarm, as noted in last week’s eNews by economists Chris Kuehl, PhD and Ken Goldstein; market watchers and credit analysts remained somewhat puzzled at often contradictory data coming from the Asian powerhouse.  
 
While the Chinese government’s official Purchasing Managers Index was listed at a 13-month high in April at 53.3, it contradicts indexes, including one conducted independently by HSBC that finds the manufacturing PMI closer to 49.3 for the same period. It is the ninth straight decline noted by HSBC of private Chinese companies, and the level falls below the proverbial Mendoza line dividing growth and contraction. Fitch Ratings pointed out this very problem, and the issues/uncertainty it creates for investors and the credit profession, this week.
 
The U.S.-based ratings agency believes the divide can be chalked up to private sector companies experiencing a significant disadvantage in the area of credit availability when compared to its public sector competitors. Fitch noted the ‘official’ [government] PMI figure reflects positive returns from large state-owned enterprises in particular, whereas the HSBC index is almost exclusively comprised of information from private sector entities.
 
“The divergence of the indicators may reflect differential terms of access to credit, with the contracting HSBC index representing the tighter credit conditions for private companies, whereas the expanding official index reflects China’s large state-owned entities, which enjoy support for growth and expansion and have easier access to funding,” Fitch said in its statement. “This is perhaps not surprising from a credit perspective when considering a centrally directed economy trying to integrate a growing capitalist business sector.”
 
While perhaps not a “surprise,” the continued uncertainty continues to be a source of frustration among investors and credit-granters.
 
Brian Shappell, CBA, NACM staff writer