May Credit Managers' Index Increases, Signals Continued Recovery

NACM's May Credit Managers' Index (CMI) improved again in May, marking the second consecutive month of improvement for the index and further signaling the end of the first quarter's snow-addled economic turmoil. A strong increase in sales boosted the index's favorable factors and there was positive movement in the unfavorable factors as well, but a nagging, somewhat inexplicable increase in disputes kept the unfavorable index flat this month.

Earlier in the 2014 the CMI predicted poor economic performance in the first quarter with a short series of declines that was eventually reflected in the US Commerce Department's downward revision of the US gross domestic product (GDP) figures. Released this week, the Bureau of Economic Analysis' latest GDP data showed that the economy had endured negative growth at a rate of 1% for the first three months of the year, mirroring similar declines in the CMI in late 2013 and early 2014.

Recent CMI readings, however, have supported the hypothesis that analysts can expect the second quarter data to be much more positive. As mentioned previously, the best news in the May report came in the favorable factors index, which reached its highest reading in the last year thanks to a leap in sales. Only new credit applications saw a decline in May, which suggests that, in general, new applications for credit have slowed, but those that are applying are in better financial shape. Additionally more credit is being extended as well, signaling that there are fewer applicants but the companies seeking credit are seeking larger amounts.

A sharp deterioration in disputes kept the unfavorable factors index from growing in May, and the indicator remained flat despite improvements in every other unfavorable factor. The decline in disputes, which signifies more disputes, could be driven by customer desire to amend credit agreements in anticipation of future growth or simply by the short-term, temporary nature of the first-quarter decline.

For a full breakdown of the manufacturing and service sector data and graphics, view the complete May 2014 report here. CMI archives may also be viewed on NACM’s website here.

- Jacob Barron, CICP, NACM staff writer

Mechanic's Lien Changes on the Way in North Carolina?

A committee within the General Assembly of North Carolina has passed legislation onto the full House regarding potential changes in the state's mechanic's lien law. One attorney with clients in the state believes the change could be positive for creditors and materials suppliers overall, but it could also allow the state to undermine some lien rights.

A Judiciary subcomittee consider and “reported favorably” on a pair of two-week-old mechanic's lien-related proposals (H.B. 1101 and H.B. 1102) on May 28. They will now be heard before the full state House on June 3, with the potential for a vote that day. H.B. 1101 seeks to improve protections provided in the state on construction projects regarding performance bonds. James Hays, Esq., a partner with Gonzalez Saggio & Harlan LLP, believes the changes will be good for creditors and subcontractors.

"It requires bonds for improvements when the state or county enters a long-term lease, such as to a Development Authority," Hays said. "Some projects where the owner is still the government, and therefore no lien rights exist, are now required to be protected by bonds as if the governing body was contracting for the work." As such, Hays believes it could possibly become a more frequent tactic by state governing bodies pursuing new development to go the P3 route. Note: The June issue of Business Credit discusses an exception written into the proposal for public-private partnerships P3s.

The only substantive change made to the proposal during the hearing was the addition of the following clause: “For the purposes of this subsection, any building or other work or improvement constructed upon land owned by a contracting body shall be deemed to be a public building or other public work or public improvement.”

H.B. 1102 simply clarifies information required to be provided in a notice to a lien agent. Hays noted further that the notices should not alter anyone’s current approach to the lien law and that it "merely establishes that the preliminary notice does not serve as the required lien notice after the work has concluded."

- Brian Shappell, CBA, CICP, NACM staff writer

House-Passed NDAA Includes NACM-Supported Construction Provisions

The US House of Representatives approved the National Defense Authorization Act (NDAA) for fiscal year 2015 late last week, sending the bill to the Senate for further consideration. Buried within the massive annual spending bill's more than 700 pages were some contracting provisions that NACM has argued could greatly benefit subcontractors and materials suppliers.

After previously emerging from the House Armed Services Committee earlier this month, the NDAA, numbered H.R. 4435, moved on to the Senate with provisions from H.R. 776, the Security in Bonding Act, intact. The included provisions would, according to the Security in Bonding Act's original sponsor Rep. Richard Hanna (R-NY), amend the Federal Acquisition Regulation (FAR) to expand the licensing prerequisites that currently only apply to corporate sureties to so-called individual sureties as well, requiring "non-corporate sureties to pledge specific and secure assets as required from others providing collateral to the federal government" and requiring that "those assets be held by a government entity to ensure payments can be made in the event they are needed."

NACM endorsed H.R. 776 earlier this year when it was first under consideration in the House Small Business Committee, and will continue to monitor the NDAA's progress through the Senate. For more on this story, check out tomorrow's edition of NACM's eNews.

- Jacob Barron, CICP, NACM staff writer

Housing Prices Continue Rise, But the Pace of Improvement Lagging

March’s S&P (Standard & Poor’s)/Case-Shiller Home Price Indices showed both good news and bad news. On one hand, 19 of the nation’s largest 20 markets showed increases. On the other, the pace of the housing rebound is not advancing at recently reported levels or predicted ones.

S&P Dow Jones noted that it’s 10-City and 20-City Composite indices increased by 0.8% and 0.9%, respectively, in March. Though new record index levels were found in the Dallas and Denver markets and Chicago showed its best annual growth since the late 1980’s, an easing of the growth rate demonstrated in “boom-bust” markets like Las Vegas and San Francisco was the big story coming out of Monday’s data release.

David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, acknowledged that prices are rising more slowly and blamed factors such as the high student loan debt levels of would-be first-time homebuyers and tough bank lending standards for some of the drag on housing activity.

The top February-to-March gainer in the latest report was San Francisco at 2.4%, with Seattle the only market within striking distance. The Bay Area market was also one of the top two in one-year growth at 20.9%, behind only Las Vegas’ 21.2%. The trouble is that the top two markets each had been tracking between 25% and 30% gains during their post-downturn peaks, according to S&P/Case-Shiller statistics. New York was the only market to post a monthly loss (-3.3%) in March. The worst annual percentage change was found in Cleveland (3.9%) and Charlotte (4.9%).

- Brian Shappell, CBA, CICP, NACM staff writer

Two Key EU Credit Upgrades

Two nations that perhaps most defined the European recession continue dig themselves out of significant holes. And two of the so-called “big three” have done well enough to force credit ratings agencies took notice Friday.

Spain, one of the four biggest economies in the European Union and one that had arguably the hardest fall from grace, received something of a rarity for the country in recent years: a credit rating increase. Standard & Poor’s Ratings Services raised the Spanish long- and short-term foreign and local currency sovereign ratings  of “BBB/A-2” from “BBB-/A-3”. The outlook also has been moved to stable. S&P noted that the upgrade “reflects our view of improving economic growth and competitiveness as a result of Spain's structural reform efforts since 2010, including the 2012 labor reforms…We also expect that recovering employment will contribute to improvements in the country's fiscal position and the stabilization of financial system asset quality.” One key factor helping Spain is the rebound of its exporting demand of late. Still, some concerns remain, such as the nominal household earnings of its citizens, younger demographics that have long been out of the productive workforce and high levels of public indebtedness, according to S&P. But the future looks much brighter now for Spain than even a year or less ago.

On the same day, Fitch upgraded the long-term foreign and local currency issuer default ratings, the first domino to fall in the European downturn and a case study in economic problems, to “B” from “B-,” with a stable outlook. The issue ratings on Greece's senior unsecured foreign and local currency bonds were also upgraded, said Fitch in a statement.  The upgrade was driven by Greece’s ability to reach some of the key targets on spending/budgetary concerns set by the EU and International Monetary Fund, the noticeable reduction in near-term sovereign liquidity risk and “remarkable” deficit reductions.

“With the most challenging phase of Greece's adjustment behind it, the rating is becoming less sensitive to policy holdups and political crises,” Fitch said in its release.

- Brian Shappell, CBA, CICP, NACM staff writer

Several Economic Darlings among List of 5 Most Vulnerable Nations

Concern about the prospects of the economies of many emerging economies, including several recent pace-setters, continued to build as evident in Coface’s unveiling of its most recent roundup of Country Risk Trends.

Paul Ballew, chief data, insight and analytic officer at Dun & Bradstreet, was among speakers at the Coface Country Risk Trends release, noting a dubious turnaround from formerly hot conditions in many emerging economies. He blamed an unprecedented monetary easing the encouraged large capital inflows and the subsequent credit and housing bubbles, all of which appear to be long-finished, for causing what, in hindsight, was unsustainable growth. As such, he listed the most vulnerable, "bubbly" nations at present are as follows: Venezuela, 2014 World Cup host and 2016 Olympics host Brazil, Turkey, India and Malaysia. The rankings are based on human capital, physical capital, competitiveness and openness. Malaysia and Turkey, however, do show some ability to shirk off asset bubbles because of supply-side improvements there, Ballew noted.

“Emerging markets are not homogeneous, and the last five years have arguably exacerbated these differences,” Ballew said in prepared comments released by Coface. “Some markets are looking especially vulnerable in 2014, while others have gone some way to strengthening their ‘pillars of development’ and alleviating political risk.”

Among emerging nations with the lowest political, economic and supply-side risk in the latest research were Chile, Hungary, Poland, the Philippines and Mexico. Because of them, as well as some other nations, cautious optimism exists for emerging economies to grow, on aggregate, at a faster pace than those from advanced, traditional powers through 2018.

- Brian Shappell, CBA, CICP, NACM staff writer

China Responds to US Trade Pact Effort in Asia

The Trans-Pacific Partnership was a pretty bold move by the Obama administration, but it is now seen as ill-advised and badly conceived. It was supposed to be the key to the US “pivot to Asia,” and many of its advocates thought that the other nations in the region would be eager to see China off-balance. Now, China has recovered the momentum lost when the TPP was conceived and has seemed to turn the tables.

Now, more likely to make an impact is a China-led effort dubbed APEC—the Asia Pacific Economic Cooperation group—of which the US and Japan, like the TPP are members. The plan put forward by the Chinese is similar to that which anchored the TPP, but includes China as a dominant player. It puts the US at a disadvantage in some areas. It also pleases the Japanese by leaving alone key sectors they’ve engaged in protectionism over for years and also gives little to the US.  In addition, if the Democrats in Congress could not support the Obama-championed TPP plan, there is virtually no chance it will support the APEC plan and that threatens to leave the US on the outside looking in. The “pivot” initiative was not well executed by the US, and we all know what happens in a basketball game when that happens.

- Chris Kuehl, PhD, Armada Corporate Intelligence

France, Italy Fail EU in First Quarter

The European Union maintained quarterly growth of 0.2% in the first quarter of 2014, nearly a full percentage point better than the loss posted in the same quarter the year before, and a German recovery from its small lull is in full effect. But that was the end of anything in the way of good news coming out of the EU’s statistical arm on Thursday.

Eurostat’s flash gross domestic product (GDP) estimates for the quarter disappointed massively, as growth was expected to be more the double the figure it reported. Hope had been returning on anecdotal evidence that the second and third largest economies on the euro currency, France and Italy, were showing real momentum. Both fell flat.

France showed no growth change between 2013’s fourth quarter and the most recent period. Even though France’s growth rate was up 0.6% from the same quarter one year ago, larger acceleration was anticipated since December, if not counted upon. Meanwhile, Italy posted a surprise quarterly retraction of 0.1% and an annual dip of 0.5%. A number of experts include New York University professor and Z-Score bankruptcy indicator creator Ed Altman, PhD, have predicted that the key to anything in the way of a sustained rebound was the sustained health of France and Italy.

There was also a surprise, 1.4% slowdown in the Netherlands, one of the few nations that showed some stability during the EU’s lengthy recession. The EU is considerably healthier than one year ago, but optimism had been increasing that the rebound might be a hot one, rather than an uneven ride.

- Brian Shappell, CBA, CICP, NACM staff writer

Industries to Watch: Solar Rebound?

It would be an understatement to call the 2011 financial meltdown of solar panel manufacturer Solyndra a blush for the Obama Administration, which had approved grants in excess of a half-billion dollars for the company before it went bust. Solyndra and a rash of other bankruptcies in the solar industry made it one to watch with a wary eye, but companies that made it through the industry downturn may now have renewed opportunities.

After going virtually silent on the issue for a few years, President Barack Obama came out firing again in May, championing how good solar could be for US businesses, using Walmart as an example of a cost-conscious corporation using alternative energy to its advantage. He also renewed a pledge to make solar a key component in a goal to reduce electricity consumption in federal buildings by 20% by the end of this decade. Administration staffers followed up with a small media blitz promoting solar. While there was no direct talk of the widespread renewal of government investment and assistance, one could surmise such a stark push isn’t simply a one-off.

“Clearly the president is reengaging in the discussion with the hot topic being about climate change again. Obviously something is going on,” said Michael Joncich, manager of Credit Management Association’s Adjustment Bureau. Joncich notably predicted the massive rough patch for the US solar industry, a result of factors including market saturation and aggressive price-cutting from Asian competitors, in a Spring 2011 article in NACM’s Business Credit.

With Asian and European manufacturers now having their own industry downturns, it appears conditions have stabilized somewhat domestically. Barring a reversal of conditions, creditors may be able to ease their concerns about the industry, even if only slightly.

“I guess it’s a good sign we have not been hearing about anyone going down lately,” Joncich said of the slowed trend of industry bankruptcies. “Those companies that survived the financial crunch in the last five years are better for it. They’ve made it through lean times and should be positioned to take advantage of the improved economy.”

Therein could be the hook, even more important than renewed interest by the White House: the economic rebound. As big a factor as any in the fall of solar was that perceivable high upfront costs became an increasing obstacle as consumers showed elevated concern about the falling value of their homes and the security of their jobs. One veteran credit manager who was in the solar industry at the beginning of this decade said he believes any solar revival will be primarily on the shoulders of American consumers, not lawmakers. “I think solar is going to have a big future, as the technology is improving and you’re going to get price parody eventually,” said the credit professional, who asked to remain anonymous. “Would I consider going back? I definitely would.”

- Brian Shappell, CBA, CICP, NACM staff writer

Oil a Game-changer for Mexico?

What does Mexico look like in five years if estimates that Mexico could become a top-five oil nation come true? This is purely speculative as there are all kinds of issues that could and probably will come up but, if it comes to fruition, three things could well change Mexico drastically in the years to come:

  1. Immigration to the US could well plummet as the Mexican economy heats up. The migration pattern when it comes to Mexico is that those from the poorer regions in the south move north looking for work. Finding little, they generally keep going across the border to seek their fortunes in the US. The estimate is that massive exploitation of the shale deposits will have roughly the same impact on Mexico as the deposits in North Dakota had on the US.
  2. Mexico becomes the equal of Brazil as an emerging Latin American market. Not that Mexico is unimportant now, but this vaults the country into the world as a player, geopolitically.
  3. The drug wars will be easier to fight. The power of the drug cartel is the ability to throw local money around and buy off the local officials. There was a time when the political parties had that ability more than the drug gangs did. Oil money is bigger than drug money, and this will give the power back to business and the government, assuming the corruption that has beset Pemex can be controlled.

Does all this change the relationship between the US and Mexico? Almost undoubtedly, it will, but nobody really knows quite how much at this stage.

- Chris Kuehl, PhD, Armada Corporate Intelligence

National Fraud Survey Extended Two Weeks

The survey period tied to a national payment fraud study being conducted by a collective of five Federal Reserve Banks has been extended to May 23.

The Fed, citing a desire to get more input from sectors such as trade credit, announced the change on Friday – after the publishing of an eNews article discussing the original May 9 deadline.  The survey is available by clicking hereThe Fed specifically reached out to NACM earlier this year to ask for increased participation from trade credit this year in the payment fraud study.

NACM strongly encourages its membership to take part in this important venture, as the more data that is available on topics like payment fraud, the more equipped federal agencies and private businesses alike will be able to combat such problems. The survey should take about 30 minutes to complete and, to help with tracking purposes, please write "NACM" in the field marked "Other, please specify" for the question about trade association membership on page three of the questionnaire.

- Brian Shappell CBA, CICP, NACM staff writer
The Federal Reserve also announced its speaker for the June 11 Credit Congress session "Payment System Priorities: What the Federal Reserve Has Learned" as Dan Gonzalez, vice president of Industry Relations for the Federal Reserve’s Financial Services Division. For more information and to register, click here.

Important Chapter 9 Bankruptcy Going to Creditor Vote Soon

The complicated Detroit municipal bankruptcy case cleared key hurdles this week, and it appears creditors will have their say on a restructuring plan much sooner than many experts originally predicted.

Information on the proposed Detroit restructuring package is being prepped for release to creditors as early as Monday, according to various reports. This follows this week’s deal between the city and two police unions and a ruling by U.S. Bankruptcy Court Judge Steven Rhodes that documents could be sent to creditors. They will have 60 days to vote following the official mail date of the information packets, expected to be May 12 at this point.

The development sticks to the word of Rhodes, who vowed to set a fast timetable for resolution of the city’s bankruptcy, the largest municipal bankruptcy case in US history. The matter is of keen interest nationally because of its potential implications for many US cities struggling with escalating debt problems tied primarily to retiree benefits such as pensions and health insurance. Moody’s Investors Service previously predicted a high potential for a significant “cram-down” on some types of creditors, though trade creditors dealing with the city have quietly remained confident that they would keep doing business close to usual and getting paid without egregious delays.

- Brian Shappell, CBA, CICP, NACM staff writer

Global Manufacturing Data Down on Not-So Emerging Markets, Japanese Struggles

The Global Manufacturing Purchasing Managers’ Index, produced by J.P.Morgan and Markit in association with other firms, slid to 51.9 for April, down from the 52.4 posted in March despite impressive conditions returning the United States and European Union. The culprits include problems throughout the once-hot emerging markets that look to be here to stay. Additional, an increase in the sales tax in Japan badly hurt numbers there, though that is seen as a temporary situation that people will adjust to in short order.

Markit released the following PMI data for the month of April:

Austria -- 51.4 (51 in March): Backlog clearance helps output surge.
Australia – 44.8 (47.9): Orders decrease, Chinese easing, holiday season a bad April combination.
Brazil – 49.3 (50.6): Brazil’s troubling slide continues, PMI at worst level since last summer
China – 48.1 (48): Staffing numbers at six-month low on more order declines.
Czech Republic – 56.5 (55.5) PMI back to three-year record reached in February on order inflows.
Egypt (non-oil) – 49.5 (49.8): New orders, output down amid concern over fragile political stability.
France – 51.2 (52.1): New export orders rise not enough to offset output and domestic demand retreat.
Germany – 54.1 (53.7) Pace of output expansion second-best in three years.
Greece – 51.1 (49.7): Faster inflows of work mean the first employment growth in six years.
Hong Kong – 49.7 (49.9 in March): Output is falling on muted client demand.
India – 51.3 (51.3): Increased competition for work, upcoming elections working as a drag on growth.
Indonesia -- 51.1 (50.1): New order growth stymied by raw materials shortages.
Italy – 54 (52.4): Fastest output, new orders upticks in three years.
Japan – 49.4 (53.9): Orders and new output freefall mostly because of sales tax hike, to be temporary
Mexico – 51.8 (51.7): Output growing, but at a slow pace.
Netherlands -- 53.4 (53.7): Output growth considered "solid," even at six-month low.
Poland -- 52 (54): Despite decrease, manufacturing employment remains high on strong prospects.
Russia – 48.5 (48.3): Overall rise belies continued decline in orders, especially from abroad.
Saudi Arabia (non-oil) – 58.5 (57): Business activity rising at a sharper rate.
South Africa – 49.4 (50.2): Mining strikes cause big disruptions, new orders see worst drop in index ever.
South Korean – 50.2 (50.4) Exporters expect improvement soon, but weak stats across the board.
Spain – 52.7 (52.8): New orders grow for tenth time in 11 months, production struggling with pace. 
Taiwan -- 52.3 (52.7): Faster rate of new orders and export demand found, while output eases. 
Turkey – 51.1 (51.7) Stronger export demand not enough to prevent second PMI slide in a row.
UAE (non-oil) – 58.3 (57.7): New orders surge, demand for exports near a record high.
United Kingdom – 57.3 (55.8): Consumers buying drives new products launches and backlog-clearance.
United States – 55.4 (55.5 in March): Job creation eases despite order and output rate acceleration.

Study: Small-Business Credit Conditions Deteriorated to Start 2014

The Experian/Moody’s Analytics Small Business Credit Index, which measures credit quality for firms with fewer than 100 employees, declined 110.5 for the quarter and included an unexpected increase in delinquency rates.

The following are among interesting findings therein:

  • Retail sales growth deteriorated to a worse-than-expected 0.3% loss from 2.9% gain in 2013’s final quarter.
  • The biggest categorical rise within delinquencies took place in the 60- to 90-day bucket.
  • Credit balances declined despite reported looser bank lending standards in the first quarter.
  • Construction, known to be generally more likely for delinquency, is improving its image thanks to a notable rise in spending. 
  • Transportation companies had the worst delinquency rate (18.1%) among large, significant industries, and continues to grow.
  • Agriculture showed an uptick in delinquencies, albeit from low levels. 
  • The gap between the best- and worst-performing US states is widening. 
  • Florida, again, topped the worst-performers list. 
  • Utah and other Mountain, Western states reported the lowest delinquency rates. 
  • California and Texas were among the best-performing, high-population states.
- Brian Shappell, CBA, CICP, NACM staff writer

Risks to Global Supply Chain at Record Levels

The Chartered Institute of Purchasing and Supply has released their latest rankings for the safety and security of the global supply chain and the picture is not pretty.

In 1994, the risk reading was a manageable 23.7, but today the risk reading is 79.8. The problem is that many companies are sourcing from a much wider collection of countries than before and there are now sourcing decisions that are three and four tiers down. The country one is sourcing from may be stable enough, but the companies in that country are sourcing from other nations that are not nearly as reliable.

For example, the disruption in Ukraine is cascading through much of Europe and far beyond the energy sector. It seems that many European manufacturers have been buying parts from Ukraine and, now, these shipments have halted since it is all but impossible to do business in Ukraine and Russia right now.

The Institute also warns that natural disasters are far more dangerous to businesses than in the past due to the delicate nature of the supply chain. A storm or earthquake in one area can cut off supply of some commodity or manufactured good for the whole world. The trend in recent years has been to consolidate control over supply and reap the rewards of that efficiency. The diversification strategy seemed to fall into disrepute because it was harder to manage and control. Now, the thinking is that diversity is making a comeback because it protects against supply chain interruptions that can shut down whole operations.

- Chris Kuehl, PhD, Armada Corporate Intelligence

NACM-Supported Construction Bill Advances in House

The House Judiciary Committee advanced a bill endorsed by the National Association of Credit Management (NACM) last week. The Security in Bonding Act (H.R. 776), which would require all sureties on federal construction projects to meet the same financial and actuarial requirements as "corporate sureties," will now be considered by the full House of Representatives after the Judiciary Committee reported the bill by a voice vote.

Upon its introduction by Rep. Richard Hanna (R-NY), H.R. 776 was referred to both the Judiciary Committee and the Small Business Committee. While action on the bill was deferred in the latter committee, the former body considered the legislation over the course of April, ultimately approving it for further consideration on the last day of the month.

"Current law allows prospective bidders to use individual sureties to obtain the bonds guaranteeing their performance. The law also permits individual sureties to support their bond with illiquid and risky collateral," said Judiciary Committee Chairman Bob Goodlatte (R-VA) after his committee's markup, referring to current surety policies on federal contracts as presently outlined under the Federal Acquisition Regulation (FAR). "As a result, there have been repeated instances where the federal government and subcontractors turn to individual sureties for a recovery only to find that the collateral simply does not exist. The Security in Bonding Act addresses this problem by requiring individual sureties to provide low-risk collateral to support their bonds."

NACM offered its support to H.R. 776 in March, citing the potential positive effect the bill could have on the extension of commercial credit to general contractors working on federal projects. "For our members, when extending credit to a general contractor, the presence of a bond from a so-called 'individual surety' can often be considered a financial red flag. This is because when a bond is posted via an individual surety, rather than a federally-assessed and approved corporate surety, it's often a sign that the general contractor could not meet certain underwriting requirements, and could therefore be in financial distress," said NACM, in a letter of support signed by Chairman Chris Myers and President Robin Schauseil, CAE. "This makes it harder for our members and their companies to provide the goods and services that are necessary to the project's completion, and limits the flow of commercial credit that drives the nation's economy."

"H.R. 776 is a vital piece of legislation that can broadly increase the flow of commercial credit in the construction industry, greatly enhance the cost effectiveness of the federal procurement process and contribute to small businesses' ability to grow and create jobs," the letter added.

In addition to continuing through the House, parts of H.R. 776 could also be included in the National Defense Authorization Act (NDAA), an omnibus bill Congress passes annually to detail the Department of Defense's budget while simultaneously enacting several other provisions. For more on this process, and more on NACM's positions on construction law, check out the upcoming June 2014 issue of Business Credit.

- Jacob Barron, CICP, NACM staff writer

California Credit Reporting Bill Removed from Committee Hearing Agenda

A California Assemblyman's bill that would impose new regulations on commercial credit reporting agencies took a hit this week after the State Assembly Committee on Banking and Finance removed the bill from the agenda for an upcoming hearing.

AB 2564, introduced by Assemblyman Brian Nestande (R), was set to be considered by the Banking and Finance Committee at a legislative hearing on May 5, but the bill was scratched earlier this week. This doesn't mean that the bill itself is defeated, just that it will not be considered by the California State Assembly. Under the state's legislative procedures, the bill can be repurposed and reconsidered in the Senate under certain circumstances, but with that said, the Committee's decision to exclude the bill from the hearing agenda should be welcome news to opponents of the bill who feared that the legislation could pose a threat to the free flow of commercial credit information in California.

As drafted, AB 2564 would (a) require a commercial credit reporting agency to furnish a source of information to the subject of a commercial credit report upon the request of a representative of a subject; (b) require a printed copy of the report to be provided at no cost to the subject of a report; (c) prohibit an agency, or a business affiliate of that agency, from assessing a fee upon the subject of a report in connection with ensuring the proper data is contained within the commercial credit report of the subject; and (d) require an agency to endeavor to maintain the most accurate data possible regarding the subject of a report.

The bill closely resembles Virginia House Bill 2198, which Virginia's legislature considered over the course of 2013 before eventually abandoning it. NACM worked successfully to defeat HB 2198 in Virginia last year, opposing the bill on the basis that requiring commercial credit reporting agencies to reveal the identity of their sources would have cooled the free and open exchange of credit information in that state, and submitted a letter to the California Assembly Committee on Banking and Finance earlier this week objecting to AB 2564 on similar grounds. The letter can be found here.

- Jacob Barron, CICP, NACM staff writer

Economist: Export-Import Bank Under Short-Sighted Political Attack

Since the 1930s the Export-Import Bank (Ex-Im) has been one of the most important tools in the US arsenal for stimulating trade. For decades, both the Democrats and Republicans have seen the companies in their states and districts do well as a result of Ex-Im activity. It was long considered one of the most efficient of trade promotion tools, but now it is facing serious opposition from the ranks of the Tea Party wing of the GOP as well as from some of the more liberal members of the Democrats.

Opponents attempt to paint such activity as a kind of corporate welfare and an inappropriate way to spend money. The fact is that Ex-Im is not actually spending government money as much as it is using government loans to seed global trade projects. The other salient fact is that the Export-Import Bank is self-funding and actually returned $1 billion to the US Treasury last year.

The Ex-Im Bank works pretty simply. If a foreign buyer of American goods lacks the money needed to purchase from the US, the Ex-Im Bank will loan the money needed to make that purchase. The foreign buyer is on the hook to repay that loan or they face collection procedures and exclusion from the system. It is rare that an Ex-Im loan is not repaid. The US manufacturer uses this loan to help compete with the manufacturers in other parts of the world that may be getting a wide variety of government assistance. The US taxpayer is basically not at notable risk with this program.

Aside from politicians to the far right and left, opposition also comes from some of the bigger corporate players and in convoluted fashion. Delta, for example, doesn’t like the Ex-Im Bank because foreign carriers can get loans to buy planes from Boeing and, thus, they can compete with Delta. It seems to escape the notice of Delta that foreign carriers will simply elect to buy Airbus jets instead and compete just fine. All that changes in such a situation is American jobs being lost to Airbus, not a domestic.

The US has a reputation for quality that attracts buyers, and they are willing to pay that higher price. That is good for the US company and the people who work for it. The loans are just that—loans. It is not a grant or a subsidy. It is a means by which buyers gain access to the US option and that buyer returns the loan value to the US.

The opposition to this program is exceedingly short-sighted and suggests a woeful ignorance as to how global trade is conducted. In the most direct of terms, the lack of this system will mean a loss of some of the highest paid jobs in manufacturing, the very jobs that most of these same politicians wail over

- Chris Kuehl, PhD, Armada Corporate Intelligence

Ex-Im Bank Director Sean Mulvaney made a case for continued bipartisan support of Ex-Im at FCIB’s 24th Annual Global Conference. Excerpts from his prepared remarks were printing in the November/December issue of Business Credit. NACM members can login to view the digital version of that issue by clicking the following link: