Greek Credit Managers Face New Challenges

The financial crisis in Greece continues to unfold as the International Monetary Fund (IMF) announced today that it won’t approve Greek loans until a more solid agreement is formed between Greece and European governments, according to Reuters.  

While the predicament is ongoing, credit managers living and/or conducting business in Greece are faced with new challenges and tough decisions every day. “My job as credit manager has changed a lot,” said Lampros Koutsinis, credit analysis assistant manager for Samsung Electronics in Greece, in an email.

After the enforcement of capital control in Greece’s banking system, he explained, credit analysts are unable to use the well-known technical tools and methodologies in order to assess a customer’s credibility. “Qualitative information now is the dominant player to the credit game,” he said. “If you have access to bank information and good bank network ... you are one step ahead of the other credit managers in the market.”

As far as conducting business, Koutsinis explained that he follows credit rating rules and Samsung’s credit policy plan. He can accept later payments only from pan-European key account customers who have a pan-European or multinational presence. All Greek customers, he noted, have to pay in advance for new orders, and no extensions to payment terms (for previous invoices) may be accepted. For customers who live in Greece, their payments are executed through e-banking to Samsung’s account in Greece. Payments from customers outside of Greece are made to another bank account in England.

“The most difficult challenge is that every day I ... battle between my professionalism and my character and personal way of thinking,” Koutsinis said. “I am obligated to stop cooperation with healthy customers (before capital control) that cannot pay now (due to capital control). These customers are led to bankruptcy due to credit crunch and cash issues … and I can do nothing for this.”

- Jennifer Lehman, NACM communications and marketing associate

Bankruptcy Roundup: A&P, Oil & Gas

For the second time in five years, A&P has filed for bankruptcy. This time, it appears unlikely the company will reorganize and continue doing business, as sales of its remaining grocery stores continue. A&P, once the once largest grocery chain in the United States, did not improve its business model enough during its bankruptcy reorganization early this decade to compete with the buying power and aggressive pricing of larger competitors Wal-Mart and Target.

“I think the biggest problem is the competition,” said Bruce Nathan, Esq., of Lowenstein Sandler LLP. “What it comes down to primarily is that they were not growing and just couldn’t compete with the ‘Big Box’ stores.”

Meanwhile, at least three more energy companies have filed for Chapter 11 due to the oil market bust. Two of the firms hail from Houston.

Milagro Oil & Gas Inc. filed on July 15 in the U.S. Bankruptcy Court in the District of Delaware. It lists 30 creditors and estimates assets between $1 million and $10 million with liabilities between $500 million and $1 billion. Milagro's plans include selling assets to Houston-based White Oak Resources VI LLC for $120 million in cash and $97 million in equity, according to news reports.

Also on July 15, Houston-based Sabine Oil & Gas Corporation filed in the U.S. Bankruptcy Court for the Southern District of New York. “We remain committed to maintaining operational excellence and executing within our current strategy–and importantly, we fully expect to continue operating in the ordinary course,” said David Sambrooks, president and CEO. “We intend to emerge with increased financial flexibility and a sustainable capital structure that will enable us to devote capital to grow our business.” The company expects that its cash on hand, combined with funds generated from ongoing operations, will provide sufficient liquidity to support the business during the balance sheet restructuring process.

In addition, Birmingham-based Walter Energy, Inc., metallurgical coal producer for the global steel industry, and its U.S. subsidiaries, filed in the Bankruptcy Court for the Northern District of Alabama largely because of what company upper management called “depressing conditions” and a “new reality” facing the industry.

- Diana Mota, NACM associate editor, and Brian Shappell, CBA, CICP, NACM managing editor

NACM Industries to Watch: Non-Energy Natural Resources/Raw Materials

Extraction of resources for energy production continues to grab headlines as there are companies perennially facing solvency challenges in this new era of increased supply and dropping prices. However, natural resources and raw materials used for non-energy purposes are falling under increasing pressure of late, as illustrated by another bankruptcy filing in the sphere this week.

Birmingham-based Walter Energy, Inc., a metallurgical coal producer for the global steel industry, and its U.S. subsidiaries, have filed in the Bankruptcy Court for the Northern District of Alabama. The company previously negotiated a restructuring agreement with certain senior lenders in a case pertaining to its U.S. operations (those in Canada and the United Kingdom were not included in the filings).

“In the face of ongoing depressed conditions in the market for met coal, we must do what is necessary to adapt to the new reality in our industry," said Walt Scheller, Walter Energy CEO. The firm said it has sufficient cash to assure that vendors, suppliers and other business partners will be paid in full for goods and services that they provide during the reorganization process.

One of the problems facing the industry stems from the fact that non-energy commodities (iron ore, steel, aluminum, etc.) are traded in U.S. dollars, now a stronger currency than in many years, yet most of the manufacturing takes place in countries where the dollar is not the dominant currency, said Martin Zorn, CEO and president of Kamakura Corporation, which analyzes and reports monthly on corporate credit quality and solvency risk. This can lead to a host of foreign exchange problems, as a number of publicly-traded companies in various industries have noted surprisingly disappointing earnings this year.

Weakness for domestic producers isn’t the only, or perhaps even most significant, headwind damaging the industry. The much-discussed slowing of the Chinese growth rate in the last couple of years means drastically reduced global demand for iron ore, steel and aluminum, among other commodities. Slower Chinese importing is becoming an increasing financial issue for resource-rich countries in South America, Canada and especially Australia where more than one-third of all exports are destined for China. No industry is more important to that country’s GDP than mining, according to Coface’s 2015 Country Risk Report.

“Australia’s mining sector is very much tied to the Chinese economy,” Zorn told NACM this week. “We’re going to continue to see a lot of pressure on natural resources companies there.” If problems escalate into insolvency or even just the brink of it in many cases, many other sectors could face financial problems in Australia, one of the top destinations for business among NACM members’ companies.

- Brian Shappell, CBA, CICP, NACM managing editor and Diana Mota, NACM associate editor

Builder Confidence Growing, Countering Trends Elsewhere

For the second straight month, residential construction confidence numbers have reached levels not seen for almost a decade. November of 2005 last showed this much enthusiasm for the sector. Are those in the industry seeing something the rest of us aren’t? Or are the homebuilders playing the harbinger role?

What makes this all the more unusual is that some stiff headwinds remain the homebuilding sector. Mortgage rates are down, but the availability of these loans remains limited to those with pristine credit. There has also been an increase in the price of homes, which should have been pricing more people out of the market in some areas. Raw material costs are down and, while that bolsters confidence, labor costs are up. Additionally, it has been nearly as hard for the construction sector to find the skilled workers it needs as it has been for the manufacturers.

The confidence may not be well placed. Then again, there is recognition that there is still healthy demand out there and most of the housing markets are tight. It is also important to note that confidence levels have not been perennially accurate regarding this sector.

The three rationales for this expression of renewed confidence include the following:
  • Far fewer builders: The recession reduced the level of competition and that has meant more market share for the ones that have survived.
  • Falling jobless totals: This is something the sector has always had to watch closely as a key indicator.
  • Millenials market emerging: It seems that the older members of this cohort are finally starting to spend and buy homes as they get around to starting families. When this generation finally moves out of the lofts and their parent’s basements, the housing market will see a nice little surge of activity. The hope now is that all of this is not just wishful thinking.
- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

Lifting of Secondary Sanctions in Iran Unlikely a Boon for Western Creditors

As controversy continues to spread over the proposed U.S.-Iran nuclear deal unveiled, much about its future impact on the global economy remains unknown. The 150-page Joint Comprehensive Plan of Action (JCPOA) is complex on many levels; but one message is important to note: primary U.S.-invoked sanctions of the past will remain intact at least in the near term.

The proposed deal only impacts nuclear-related secondary sanctions, which generally apply to non-U.S. persons, explained Lizbeth Rodriguez-Johnson, Esq., attorney for Holland & Hart LLP. For individuals and businesses in the United States, along with their subsidiaries, the projected sanctions relief will not affect the current restrictions on conducting business with Iran.

“The sanctions relief will not result in the opening of the Iranian credit markets to U.S. companies or the Iranian market, in general, to U.S. persons,” said Rodriguez-Johnson, who spoke on the topic as an instructor at NACM’s Graduate School of Credit & Financial Management International in June.

- Jennifer Lehman, NACM marketing and communication associate
For the extended version of this story, featuring more analysis, check out this week's edition of NACM eNews, which is released every Thursday late afternoon and available via email or at

Disconcerting Reports Abound from the Industrial Heating and Chemical Coaters Industries

Each month, Armada Corporate Intelligence prepares a couple of index collections for two groups very connected to the U.S. manufacturing and industrial community: the Industrial Heating Equipment Association (IHEA) and the Chemical Coaters Association International (CCAI). Both are engaged in the treatment of metal for industrial uses and are, thus, heavily engaged in sectors such as the automotive industry, the energy world, aerospace and many others. Every piece of metal that is used in manufacturing or construction is treated in some way, and these are the companies that do that treating. The indices we look at give a good assessment of what is happening and this is an excerpt of the latest report.

If you look at the June version of the CCAI index, expected growth is somewhat hard to see. Of the 12 indicators, seven of them are trending in a negative direction and five are either very slightly positive or essentially flat. What’s worse is that the negative indicators really sank dramatically.

As usual, there was some joy in the category of “New Automotive and Light Truck Sales.” This continues the upward trend and stands one of the only real bright spots. The day that these sales start to flatten out is the day the economy really starts to stutter. The other indicator that looks pretty healthy is steel consumption--That is related to the demand for these vehicles as the other sectors, especially energy, had been propelling steel demand have been weakening.

The construction arena is getting slightly better, but not in the public sphere (re: where the steel demand exists). The “New Order Index” from the PMI isn’t getting any worse, but it also didn’t improve after falling dramatically last month. Concern permeates in the business community as a whole as will be obvious when we look at the readings that are in decline.

The more complete story is unfortunately found in the negative numbers. They are all to one degree or another connected to demand. The New Housing Starts statistics are down as mortgages remain difficult to obtain. Metals prices are all down in another demand-driven situation, to be sure. It is also significant that the producers have been reluctant to pull back on production because of market share concerns.

Meanwhile, capacity utilization numbers are dovetailing with capital investment, durable goods orders and factory orders. These deep plunges illustrate a mark of real economic uneasiness.

- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

Greece Makes Deal with EU, But A Long Road Still Ahead

Even though Greece and European leaders reached a deal early Monday to prevent a potential “Grexit” from the euro, many challenges remain. And the impact of the ongoing issues with Greece is unlikely to remain contained to businesses in the European Union.

“The fact is that reaching an agreement between the negotiators was just the first step and perhaps the easier of them,” said Economist Chris Kuehl, Ph.D. “Now the arrangements will have to be approved by groups that have already expressed a great deal of hostility and pessimism.”

Greek Prime Minister Alexis Tsipras is no longer operating through a position of strength, which may make it harder for him to push anything through. “The Tsipras government has fought these concessions tooth and nail and deliberately rallied the population into rejecting the very provisions he has agreed to only a couple of weeks later,” said Kuehl. “His base now considers him a liar or a coward or both, and there is nothing left of his political authority.”

The ripple effect of the crisis impacted businesses in the United States as well. Take, for example, the Devoo Greek Deli & Specialty Market in Baltimore, which imports much of its products from a family farm in Greece. “We haven’t been able to wire money to some of our suppliers,” said owner Dimitri Komninos. “We do get a variety of olives from other farmers and they have asked us not to send money since the banks have been closed.”

While the Greece deal with European leaders takes a step toward rectifying the situation, Kuehl notes that it now enters “the realm of politics and that makes [its] passage anything but assured.”

- Jennifer Lehman, NACM Marketing and Communications Associate

Survey: Data Analytics Time-Consuming, Yet Critical

Six out of 10 business-to-business (B2B) companies are frustrated by the amount of time it takes to attain meaningful reports and data insights from the data they collect, according to a survey by Data Intensity and Researchscape.

More than one in three, or 36%, of respondents said they invest $100,000-$499,999 annually in current analytics solutions, including systems, people and processes; 26%, $500,000-$999,999; and 20%, $1 million-$9 million. The survey, conducted early in 2015, attempts to gauge the current state of data analytics and states that most companies believe data analysis via a service provider would help address this issue. Other top concerns included inaccurate data, difficulty in using data to make strategic and operations business decisions, and difficulty executing predictive modeling/forecasting with existing data and data models.

Regarding the importance of data, from the perspective of both using and contributing, “as credit managers, we are trying to put all the pieces together to make an informed credit risk decision,” wrote Norman Zusevics, CICP, MBA, credit risk manager for Shure Inc., in the article “Why I’m a Fan of NACM’s National Trade Credit Report” (Business Credit, June 2015). “As an economist, I love to pour through data. … As I often tell colleagues, the data tell the story.” He added that having a few consistently reliable, go-to sources of data helps provide credit professionals with a “pretty clear picture” of a customer.

Survey respondents also were asked about the concept of a cloud-based analytics software and service solution. Twenty-three percent cited the overall idea as excellent and 59% as good. The majority (58%) indicated the solution should include data analysis-as-a-service; data modeling, 47%; business consulting, 43%; dashboard development, 42%; master data management, 36%; mobile data analytics, 34%; merging internal data with external data (industry benchmarks, market demographics, etc.), 30%; system implementations and architecture, 24%; social media data analytics, 24%; or extract, transform, load (ETL) capabilities, 21%.

A majority of respondents deemed an analytics software and service solution beneficial and relevant to their business. Additional results about the cloud-based analytics software and service solution in terms of value, purchase likelihood, delivery model and purchase options include the following:
  • 73% surveyed said they considered the solution to be “very” or “completely different” from others.
  • 70% rated it as “very” or “completely relevant” to their business, along with “very” to “extremely” beneficial to their business. 
  • If the price was acceptable, 27% said they were “moderately likely” to purchase it; 45%, “very likely;” and 20%, “completely likely.” 
  • 58% preferred the delivery method “create custom analytics solution in the cloud”; 43% chose “transfer your existing analytics solution to the cloud”; and 32% wanted a “packaged SaaS analytics solution in the cloud.”
- Diana Mota, NACM associate editor

Atradius Predicts Change in European Chemical Sector

The most recent Atradius’ “Market Monitor: Focus on Chemicals Performance and Outlook” rates countries from “excellent” to “fair.” Although the industry appears steady, the report warns that change is likely imminent—especially for businesses in the European chemical sector. An increase in global competition along with the abundance of U.S. natural gas has impacted sales prices worldwide.

“European and other chemicals businesses have to face the fact that the U.S. share of global capital investments in the chemical industry has constantly increased over the past couple of years,” the report states. “While the U.S. petrochemicals and energy-related chemicals subsector currently face some problems due to the lower oil price, it seems that in the longer term the U.S. chemicals industry may gain a major competitive edge.”

For now though, the European sector remains relatively stable; in fact, the industry in France is growing. According to the report, French chemical production is expected to increase 2% this year and the willingness of banks to provide credit to this sector is marked as high.

In Germany, the chemicals industry—the largest in Europe and fourth largest in the world—is growing in production, yet falling in sales. This country is dependable with payments, typically paying on an average of 45 days. “We have seen no change in payment behavior or increase in notifications of nonpayment in the last six months and expect this pattern to continue in the coming months,” Atradius noted.

In Spain, 57% of revenues in the chemical sector are from exports. Since 2000, the sector has increased its exports by more than 170%. Payment typically takes on average 60 days; however, it is likely that some companies will take more than 75 days to pay.

To read the full report, please visit the FCIB Knowledge and Resource Center.

- Jennifer Lehman, NACM marketing and communications associate

The 'NO' Vote in Greece, and Realistic Options for the Mess

The outcome of the Greek referendum was never really in question. The meaning of the vote most certainly is.

The Greek population shocked nobody when they voted to not impose stringent austerity plans on themselves and chose to believe its leader’s claims Greece could demand a better deal from creditors with this vote.The Greeks already owe billions and have defaulted on the debts they already have—not a good position from which to request another loan.

The only reason there is any interest at all in continuing the talks with Greece is that the European Union doesn’t want to be forced to kick the country out of the eurozone and perhaps the EU as a whole. That is not what the EU was designed to be, but there is reluctance to keep a nation in the organization when it chooses not to play by the rules.

If the Europeans capitulate and offer a bailout without getting any commitments at all from the Greeks, the threat to the EU is palpable as a precedent will have been set for other nations in deep debt. This could utterly destroy the financial footing of the eurozone.

The Greek economy is going to fall apart completely in the weeks to come, and there is nothing the Tsipras government can do about it. The “NO” vote was far from unanimous with some 40% voting “YES.”

Creditors have expressed willingness to provide more money if there is a commitment to budget discipline and some intent to make good on the debt. The Greeks have not been willing to make that promise and, thus, the stalemate has arrived. The EU may well agree to less than originally required, but that will come at a price.

There are three choices now as far as the Greeks are concerned. The first is that Tsipras continues to be the chief negotiator and that he tries once again to get the troika to change their terms. The second choice is to replace the abrasive finance minister with another ideologue and continue to poke at the Europeans. The third option would be to appoint a technocrat to the post and hope that this calms the talks down. There have been calls for the Tsipras government to emulate Brazil and pick somebody like Joaquim Levy, but that has its risks as well, as Brazil shows. Levy has indeed reassured the investment community there, but his decisions have infuriated the leftist base of the Brazilian president, whose approval ratings have never been lower. The betting is that Tsipras tries to do this on his own, difficult as that may be. 

- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

Number of Troubled Companies Rise in Latest Default Risk Study

A monthly study tracking the probability of defaults among companies rose to its highest level in several months in June. The dubious list was dominated by companies based in Greece and the United States.

An index tracking the percentage of companies with a default probability exceeding 1% rose a half-percentage point from May to 6.51%, according to research firm Kamakura Corporation. That total is more than two percentage points higher than one year ago.

The riskiest company listed, amid concerns of a Greece exit from the eurozone and increasing trouble in renegotiating debt with European and International Monetary Fund leaders, is Greek financial institution Piraeus Bank SA. With a KDP (Kamakura Default Probability) score of 52%, it is one of four Greece-based banks among the 10 riskiest companies at present, at least according to these metrics. Dubiously, it is also one of just two companies with a KDP exceeding 50%—Japan’s Sharp Corp. measured at 50.1% after being below 5% just three months ago.

Four U.S. based companies—Resolute Energy Corp., Hercules Offshore Inc., Warren Resources Inc., Quicksilver Inc.—placed in the top 10 riskiest. Resolute Energy was deemed riskiest in fourth place overall, with a KDP of 36.4%. This continues a trend of problems within natural resource-based and energy-related companies since the U.S. shale boom inspired an oil price freefall and a glut of producers operating in the industry.

- Brian Shappell, CBA, CICP, NACM managing editor

Congress Abandons Export-Import Bank … For Now

Right up to the last minute, it seemed that the vote for re-authorization of the Export-Import (Ex-Im) Bank of the United States would have the support needed by federal lawmakers. In the end, Congress elected to head out of town for the Independence Day recess without passing legislation that would preserve the institution, meaning its doors are essentially shut unless it comes up again later in the month as part of another legislative effort.

The Ex-Im system is simple enough. A nation or company overseas wishes to purchase something from a U.S. company but lacks the money to do so. The foreign borrower gets a loan from the Ex-Im Bank at very competitive rates to enable the purchases of these U.S.-made goods. The money is a loan, not a grant or gift. Historically, these have been routinely paid back in full and on time, as foreign buyers want to be able to access the program in the future. They generally play by the rules.

The opposition to the Ex-Im Bank comes from Republican conservatives who have equated the program with “corporate welfare.” This is a decidedly strange attack given the way the Ex-Im Bank works—it has been taxpayer-neutral or generated a surplus in the vast majority of its years of existence. There are literally thousands of direct subsidies and specific trade preferences issued to various business sectors in the U.S that would closer fit the definition of corporate welfare.

Much has been made of the fact the biggest users of the Ex-Im Bank are companies like Boeing, Caterpillar and General Electric; but they are among 1,700 smaller operations that have taken part in and routinely benefitted from the system. Those three are also competing against companies receiving massive subsides from foreign governments, and the trio relies upon Ex-Im to help level the playing field somewhat.

The opposition is hard to understand and that has led many to theorize what underlying factors might really be behind the objections (re: pressure from big banks that see Ex-Im as a competitor, lawmakers with unrelated disputes with companies like Boeing and Caterpillar, etc.).

- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence