The Third Circuit has long been perceived as the most efficient, and perhaps most filer-friendly, when it comes to corporate bankruptcies. Perhaps it's why the district is seen as the most likely choice for filings. However, the latest numbers from the U.S. Bankruptcy Courts note that business filings coming from the district place it only in third among the 11 districts.

Chapter 11 bankruptcy filings throughout the nation declined by more than 10% during a one-year period between the end of March in 2012 and this year. The total now sits at 9,811, down from March 2012’s 11,339. The total of all types of bankruptcies also dropped by more than 10% to 1.17 million. Still a tiny percentage overall, Chapter 9 (municipal bankruptcy) filings increased to 20 between March 2012 and March 2013 from 13 during the previous 12 months.

Within the numbers, the Ninth District (West Coast) far and away had the most filings for the period at 2,418, down significantly from the 3,188 last year. It was followed the Eleventh Circuit (FL, GA, AL) with 1,288 and the aforementioned Third Circuit (located in Delaware and including NJ and PA) at 1,213. The lowest total of filings, excluding Washington, D.C., came out of the Eighth District (AR, IA, MN, MO, NE, ND, SD) with just 317.

-Brian Shappell, CBA, CICP, NACM staff writer

A credit professional would have to be somewhat asleep at the switch to have missed the often negative news coverage in business publications and mainstream media about the struggles of Best Buy and JCPenny (JCP). The problems faced by the two companies and others like them, albeit to a lesser extent, warrant inclusion of department stores and “big box” retailers as industries to watch. As such, creditors are going to need to be mindful of warning signs coming from companies therein.

JCP’s business model, which featured a failed gamble on a campaign that ended faux discounting and coupons in favor of “real” pricing, and Best Buy’s struggle to overcome powerhouse online retailers like Amazon, and brick-and-mortar competitors like Walmart for market share are the source for their struggles. But an even bigger storm for retailers of this size and profile, as suggested by Bruce Nathan, Esq. of Lowenstein Sandler LLP, potentially looms in the not-too-distant future: rate hikes. Let’s face it, rock-bottom interest rates, and the economic malaise inspiring them, won’t last forever. “If your business model is troubled and you have a lot of debt, that’s going to be one big issue,” said Nathan. “When interest rates go up, the debt has to be refinanced. But a lot of these retail businesses are also badly overleveraged.”

And potential financial problems with such stores could have a domino effect as many of them serve as anchor stores designed to drive more foot traffic to other retailers in malls and shopping centers. Nathan noted that such a domino effect could also impact a commercial real estate sector that has already seen its share of hardships over the last half-decade. “You need to look for the warnings to be able to mitigate your risk,” said Nathan. “You want to be able to anticipate a bankruptcy well before the filing. And there’s so much more information out there now that wasn’t 20 years ago.”

- Brian Shappell, CBA, NACM staff writer
 
Catch Nathan in Bankruptcy Rumblings: Identifying and Mitigating Risk of a Financially Troubled Customer Headed toward Bankruptcy at Credit Congress on May 22. For more information on the event or to register, visit http://creditcongress.nacm.org/. 

As predicted in a 2011 Business Credit magazine article, the United States’ solar energy industry has taken its share of lumps over the last two years, but there are still those purporting the massive potential that solar holds. Whether true or not, there are real and continuing risks for everyone involved in the industry, and the government budget fight and “sequester” only adds a whole new dimension to potential problems, especially for survivors of the first wave of domestic solar-related bankruptcies.

U.S. product manufacturers are contending with what they see as unfair assistance to competing solar manufacturing sectors in Asia by their governments, especially that of China. The U.S. placed tariffs on Chinese imports, but the measures were seen as somewhat weak and coupled with evidence that some Chinese firms are simply off-shoring operations to areas like Singapore where such tariffs aren’t in play. In addition, the glut of U.S. producers left over from the cheap lending days of the financial boom of the late-2000s caused an industry saturation that became a real problem when demand fell during lower growth years. The two issues led to several high-profile bankruptcy filings headlined by that of Solyndra, which had ties to key Obama Administration fundraisers investigated for widespread fraud and reaping huge amounts in government grants.

Michael Joncich, manager of the business insolvency department for NACM affiliate Credit Management Association for NACM affiliate Credit Management Association, was among those who predicted the problems in 2011. He now speculates that reduced federal subsidies, grants and other assistance aren’t likely to help current matters. “Government can make or break an industry. I don’t really know if the shakeout is done yet,” he said.

Joncich noted that a colleague in the liquidation business recently learned everything he could about green businesses, thinking it was a bubble ready to pop, especially once it became apparent that the government was retracting its “generous funding” of those industries, including solar. “The observation is that they can’t seem to fund themselves,” he said. “When the government pulls back because of federal budget cutbacks, many can’t survive it,” he said.

It doesn’t mean all solar manufacturers are doomed, but there are enough red flags that virtually all creditors dealing with customers related to the solar industry should be paying close attention to them, their accounts and their terms.

- Brian Shappell, CBA, NACM staff writer
 

Still ignoring media coverage of Chapter 9 (municipal) bankruptcy filings? That may not be a sound strategy given the findings of a new Pew Charitable Trusts study.

Pew’s report, A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care, notes that a group of 61 major U.S. cities comprises a steep, $217 billion gap between what it has promised to public sector workers/retirees and money they actually have set aside to meet such entitlements. The findings are based off of investigating trends mainly from 2010 and 2009 and intimate the problem is likely to continue to grow.

It is a key reason why, despite Chapter 9 being used quite sparingly during the last 80+ years, Business Credit contributor Bruce Nathan, Esq., of Lowenstein Sandler PC, has been talking of the potential trend and its dangers for nearing two years. Deborah Thorne, Esq., of Barnes & Thornburg LLP, also expressed concerns. She predicted there could be significant ramifications for credit departments if a quick escalation in filings happened within the next couple of years.

“I don’t see states and municipalities becoming better funded then they have been,” Thorne said in the latest edition of the magazine. “I see that getting worse. Vendors selling to public entities want to be mindful of how they are going to be paid and how well financed the portion of the municipality is that you are dealing with.”

Pensions and other retiree entitlements for former public sector employees have been an issue in a number of places where Chapter 9 filings have been used as an answer to escalating debt problems that appear to be worsening for municipalities throughout the nation, rather than improving.

-Brian Shappell, CBA, NACM staff writer

• The U.S. Senate and House finally voted in favor of provisions to avert the long-discussed fiscal cliff that pitted Democrats/the Obama Administration and Republicans against each other on issues including taxes, budget spending and debt.
• The last Credit Mangers’ Index (CMI) of 2012 showed a small decline on a drop-off of sales levels. Fiscal cliff uncertainty throughout last month of the year was seen as a significant driver of problems.
• Proponents of Chapter 9 (municipal bankruptcy) got a boost in the form of a court decision against a pension group in California and a new law in Michigan easing filing requirementes somewhat.
• A deal was struck to push back contract talks for 30 days to avert a late-December port strike that would have affected more than a dozen of the largest East Coast ports at a time when retail could ill afford delays.
• India inked a Free Trade Agreement with its fourth largest trading partner, ASEAN (a block of Southeast Asian nations) and remains at work on several bilateral deals.
• Exporting levels in Asia improved slightly though the steep decline in the European Union amid the debt crisis looms as a massive concern for exporting nations and businesses there and virtually worldwide.
• Tribune Company finally exited bankruptcy.
• European Union manufacturing levels declined by levels greater than expected.
• Retail bankruptcies among British companies continued to rise for the calendar year 2012.
• Russia launched a registry of companies that declare bankruptcy.
• U.S. consumer and business confidence continued to slump at year's end.

(Note: For more on several of these stories, check out Thursday’s edition of NACM eNews, available late Thursday afternoon).

-Brian Shappell, CBA, NACM staff writer

Several years in the making, the UCC Filing Service went fully live online this week, joining the Mechanic’s Lien and Bond Services under NACM's Secured Transaction Services umbrella.  The service provides the means to mitigate the risk of debtor nonpayment for businesses that sell or finance various types of personal property under UCC’s Article 9, as well as those that lend the labor, materials and other services under state law. The purpose, at its simplest level, is to help creditors become a secured party as an investor, thus putting them in the best possible position to get paid. Remember: secured creditors get paid out 100% (if money is available) before unsecured creditors get one cent, per bankruptcy law. This is increasingly important in areas such as construction as the domestic economic recovery, already sputtering, is threatened by ongoing and new threats, such as gridlock in the U.S. Congress.

Powelson noted that getting involved with UCC filings is not difficult when using a service providing the know-how. He recalled a colleague in Texas who, after years of “me badgering him to protect himself,” made a UCC filing about six month before a major customer filed a massive, $40 million bankruptcy. The colleague’s business was paid nearly 100% of what it was owed, unlike unsecured creditors who received pennies on the dollar.

“That filing cost him $82 and took about one hour to complete,” Powelson said. “With getting paid what he was owed, he joked that the program already paid for itself ‘for about the next 2,200 years.’ I think there are a ton of credit managers who just aren’t sure about the process and perceive it as very cumbersome. The process can be somewhat easy, actually. But sometimes you’ve got to get crushed or really kicked in the teeth and have your boss say, ‘we can’t do this anymore. What could we have done to protect ourselves?’ before you make the move.”

- Brian Shappell, CBA, NACM staff writer

Commerce delighted struggling U.S.-based solar manufacturers – past and present – last week by levying anti-dumping tariffs reported to be between 18% and just under 250% as allegations into illegal government assistance and Chinese “dumping” (selling below cost) of solar power-related products onto the U.S. market. Solyndra, presently under federal investigation for fraud and under the political campaign spotlight because of its ties to the Obama Administration, was the first since to jump on China via lawsuits even though its assets may be liquidated in the near future.

In the last week, Solyndra filed suit against a Chinese manufacturer and its U.S. subsidiary in U.S. District Court in Oakland, CA. The suit asks for a $1.5 billion judgment against Suntech Power Holdings Co., alleging the Chinese-owned manufacturer’s conduct “constitutes an unlawful conspiracy and combination to fix prices at predatory levels and to monopolize,” thus violating the federal Sherman Antitrust Act and California’s Unfair Practices Act.

Meanwhile, Solyndra was due in court before U.S. Bankruptcy Court for the Third Circuit Judge Mary Walrath Wednesday to make arguments to approve its bankruptcy plan. Therein, its assets would be liquidated, though its parent company would reorganize and continue to operate if its plan is confirmed without revision.  Among those urging the judge to not accept the plan are the Internal Revenue Service, the Department of Energy and local officials in California.

-Brian Shappell, CBA, NACM staff writer

As expected, unsecured creditors will get pennies on the dollar at best if the initial proposal for Solydra’s freshly filed reorganization plan is adopted (eventually) in anything resembling its present form by a U.S. Bankruptcy Court judge.

Solyndra, which announced it was seeking Chapter 11 protection in September amid a declining solar market during recession, high overhead, foreign competition and accusations of fraud; has filed its reorganization plan in a way many companies do when insolvency strikes: in the Third Circuit/Delaware Court. It has long been perceived that said court, based in Wilmington, is the most bankruptcy-friendly in the nation. In the plan, the controversial Solyndra would end up paying out a maximum of 6% of what it owes to unsecured creditors, and that is if proceedings go smoothly. Remember: lengthy court battles which have been prevalent in high-profile cases of late could only draw more funds from the overall pot, and reduce that estimate.

Solyndra, a solar energy company with deep ties to the Obama Administration fundraisers, still is being investigated for fraud. The California company had at one point received more than one-half-billion-dollars in government loan guarantees and was noted by Obama political enemies for its palatial offices.

It’s one of more than a half-dozen filings in the last year by overleveraged alternative energy companies, which was predicted in NACM’s Business Credit Magazine in spring 2011. Producers have alleged that Asian competitors have been offered subsidies by their governments and can no longer compete because they are undercutting them so drastically on pricing and costs. Others note a major factor is oversaturation in the U.S. solar energy/products manufacturing industry, which saw rapid and perhaps unsustainable interest during the waning days of the last economic boom.

-Brian Shappell, CBA, NACM staff writer

Germany long was held up as the model for business efficiency in Europe. Even as problems among southern European Union members first began to bubble over, the business community looked to the Germans as the likely salve to the problem, not just in bailout money but in production, efficient management and consumption by its natives. But, on top of stumbles by others in the retail sector there of late, this week came the headline-grabbing insolvency filing of mail-order retailer Neckermann.

Neckermann reportedly was working on garnering concessions from creditors, but they fell through. Some 2,000 jobs could be lost as part of the retailer’s collapse, and it led many to jump to the conclusion that the EU debt crisis is the primary culprit for the ills of this company and others who have found it tough to stay afloat.

Ben Deboeck, country and sector risk coordinator for Belgian-based Ducroire Delcredere, told us this week that it’s worth noting Neckermann was in trouble for a long while, and that it was potentially unfair to pin its failings entirely on the larger debt crisis. That said, such instances of insolvency could be part of an increasing trend pending on how the EU responds to troubles with members such as Greece, Spain and Italy.

“Given the current sluggish economic environment, it should of course be of little surprise that weaker companies, even in stronger countries such as Germany and the like, are heavily exposed to the current downturn,” said Deboeck, who keynoted FCIB’s Annual International Credit and Risk Management Summit in Hamburg. “I guess the Peugeot/Citroën problems are probably a better example of the direct fallout of the crisis, though, and may be more worrying in regards to things to come for European industries if the downturn becomes really protracted.”

-Brian Shappell, CBA, NACM Staff Writer

The Obama Administration and campaigners working to ensure a second term for the Democrat have often invoked Mitt Romney’s “Let Detroit Go Bankrupt” headline/soundbyte to hit at the Republican nominee’s presidential campaign. Now, the Romney campaign has rung the bell for Round 2 by turning a bankruptcy headache tied to President Barack Obama into a public counterstrike.

Romney went on the attack this week with allegations of ”crony capitalism” over the failure of Solyndra, a solar energy company with deep ties to the Obama fundraisers now being investigated for fraud and in the midst of a Chapter 11 case filed in September. Solyndra had received more than one-half-billion-dollars in government loan guarantees which, along with its palatial offices, were at the center of Romney’s ire. The Solyndra bankruptcy filing, the FBI raid at its headquarters and ongoing investigations levied a PR hit to the Obama Administration. In the wake of the auto bankruptcy debate Obama and other politicians have used against Romney during campaign season, the GOP candidate is trying to turn the tables with insolvency, similarly, as the centerpiece of the counter-effort.

Romney has been bashed regularly, including by some Obama campaigners, for the self-penned 2008 New York Times headline "Let Detroit Go Bankrupt." Romney criticized Obama for the proposed bailouts of Chrysler and General Motors, which most labeled at least somewhat successful, noting a burden on taxpayers as a key critique. Romney's point was about ways to better manage the bankruptcies to improve business prospects for the long-term health of the companies with no suggestions of liquidations which would have caused millions to lose their jobs. The additional gist of Romney’s later arguments was that the president had acted in some ways on his publicly-offered advice. Still, the headline has stood out in campaign soundbytes over the depth of Romney’s point in the piece, which some argue still wouldn’t have been successful without government financial involvement during the downturn. The issue also was used by Romney’s GOP primary opponents with some success in Ohio and Michigan, though Romney managed to eke out wins in both.

However, that story has taken a significant backseat to Solyndra upon Romney’s newfound focus on the administration embarrassment.

-Brian Shappell, CBA, NACM staff writer

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

Total commercial bankruptcy filings for the first three months of 2012 hit 15,833, a 19% drop from the 19,638 filings during the same period in 2011.

According to data provided to the American Bankruptcy Institute (ABI) by Epiq Systems, Inc., the fall in commercial filings mirrored the overall decline in bankruptcies across the board. Total and noncommercial filings both decreased by 12% in the first quarter compared to the same period in 2011.

For trade creditors, the decline in bankruptcy filings has also been accompanied by a drop in collection issues, according to Lynnette Warman, Esq., a partner with Hunton & Williams, LLP. “The trade creditors I speak with confirm that they are experiencing fewer bankruptcy filings, and that for many, there are fewer collection issues,” she noted. “In fact, the number and amount of trade debts outsourced to collection agencies have also dropped over the past year.”

Much of the decline can be traced back to tightened credit conditions, both secured and unsecured, that gripped the trade during the recession. “As this occurred, some businesses failed fairly quickly after their bank lines were cut or unsecured credit reduced, ” said Warman. “Some of these closures were done through bankruptcy; other businesses just quietly closed their doors and their owners simply stopped doing business.”

While banks and sellers tightened credit across the board, the buyers simultaneously experienced a significant drop in their own income. “Many companies experienced a serious reduction in sales, which obviously led to fewer purchases on their part, thus less outstanding unsecured debt,” said Warman. “Businesses that have survived the past few years have had to cut expenses to survive, and should have less debt, both secured and unsecured, on their books.”

Warman will participate in four sessions at this year’s NACM Credit Congress in June, co-hosting the CCE Exam Review, serving as a panelist in the Legal Issues Executive Exchange session, and presenting two separate educational sessions. To find out more about this year’s program, or to register, click here.

Jacob Barron, CICP, NACM staff writer
 

Weeks after garnering the dubious distinction of becoming the largest Japanese manufacturing bankruptcy in the nation’s history, Elpida Memory Inc. is looking to protect its assets from U.S.-based creditors.

Elpida filed this week in the Third Circuit of the U.S. Bankruptcy Court in Delaware seeking Chapter 15 bankruptcy protection. The lesser invoked chapter has been used to protect foreign-based companies with significant U.S. interests while going through the reorganization process. Elpida listed assets and debts in the U.S. filing at about $1 billion.

Elpida’s initial filing in Japan, a rarity, included reported liabilities in the neighborhood of $5 billion, far too great to overcome without restructuring. The computer memory chip manufacturer, once a big part of a booming exporting industry dominated by Japan, has had trouble keeping up with foreign counterparts. The bulk of that competition, driven by lower costs, comes from outfits in South Korea, primarily Samsung.
Also not helping the Elpida and its contemporaries is that its chips are used for computers and laptops, not necessarily the growingly popular smart phones/devices like the iPhone/iPad and similar products. Additionally, the overvalued yen, which has become a bit of a magnate as investors leave the unstable euro, has made it harder for Japanese-based exporters to compete and threatens Japan’s long-held trade strength.

NACM Economist Chris Kuehl noted this case could foreshadow an uptick in business bankruptcy filings from Japanese-based companies. With so many problems challenging the nation’s economic prospects and businesses there, Kuehl intimated the time when it could be safely assumed Japanese-based customers would always pay their creditors may be ending in the near future (see more on this topic in a feature in the latest, March issue of Business Credit Magazine at www.nacm.org).

Brian Shappell, NACM staff writer

Yet another alternative/renewable energy firm has sought bankruptcy protection following a period of quiet that was preceded in late 2011 by a slew of high profile Chapter 11 filings at such companies.

Michigan-based Energy Conversion Devices voluntarily filed a petition for Chapter 11 protection in the U.S. Bankruptcy Court for the Eastern District of Michigan Tuesday. Energy Conversion Devices, through its subsidiary United Solar Ovonic (USO), manufactured and sold photovoltaic products used largely in commercial rooftop solar panels. The company plans to sell USO, among other assets, as part of its plan to reorganize.

“We firmly believe there is a strong and sustainable commercial market for solar products,” said President/CEO Julian Hawkins. “However, our current capital structure and legacy costs are preventing USO from making the investments necessary for the future of the bodiless without restructuring.

It’s the latest in a series of filings by overleveraged alternative energy companies, which was predicted in NACM’s Business Credit Magazine last spring. Producers have alleged that Asian competitors have been offered subsidies by their governments and can no longer compete because they are undercutting them so drastically on pricing and costs. Others note a major factor is oversaturation in the U.S. solar energy/products manufacturing industry, which saw rapid perhaps unsustainable interest during the waning days of the last economic boom. Prior to Energy Conversion Devices, Stirling Energy Systems Inc. was the most recent to file – but it went straight to Chapter 7 (liquidations) in U.S. Bankruptcy Court in Delaware. It followed previous filings by SpectraWatt Inc., and the controversial Solyndra, a California firm with ties to the Obama Administration still being investigated federally for fraudulent business practices. Months before, BP solar operation halted its Maryland-based solar activities in favor of relocation abroad.

Brian Shappell, NACM staff writer

While bankruptcies are declining nationwide, they don’t seem to be falling anywhere faster  than in the commercial world.

Total business filings for January 2012 fell by 20% when compared to January 2011, from 6,203 to 4,967, according to the American Bankruptcy Institute (ABI). Overall, filings in the U.S. decreased by 14%, totaling 87,946 last month, as compared to 102,175 the year prior.

“The continued decline in bankruptcies reflects the effort of consumers and businesses to shore up their debt loads in order to navigate through an uncertain economy,” said ABI Executive Director Samuel J. Gerdano. “We expect overall bankruptcy levels in 2012 to continue to trend downward until consumers increase household spending.”

Month to month, the January 2012 overall readings represented a 9% decrease from the 96,264 filings in December 2011, and a 10% drop from the 5,496 commercial filings in December 2011. ABI cautioned, however, that Chapter 11 filings in the busiest bankruptcy jurisdictions have been up significantly over the last year, increasing by 40% in the District of Delaware and by 25% in the Southern District of New York. Two major Chapter 11 cases—Eastman Kodak and Ener1, Inc.—were filed in New York last month, while three major cases—Evergreen Energy, Inc., Buffets Restaurants Holdings and Trident Microsystems, Inc.—were filed in Delaware.

Jacob Barron, CICP, NACM staff writer

In what could catch the attention of municipalities struggling with entitlement costs throughout the nation, a judge has approved a deal between public employees and a small Rhode Island city that was largely encouraged by a Chapter 9 filing in mid-2011.

U.S. Bankruptcy Judge Frank Bailey has approved a deal forged by Central Falls and many of its retired employees to voluntarily reduce the level of benefits they are receiving. The judge also approved a new collective bargaining agreement where current police and fire employees there are taking a haircut on future benefits.

Retiree benefits/pensions obligations were the overwhelming cause for Central Falls to file in 2011 as communities throughout the country fret about escalating costs for retiree health care and pensions.  Though unable to negotiate concessions beforehand, the Chapter 9 inspired public workers and retirees to take significant voluntary cuts because it, in theory, means they will keep more than if the benefits were slashed to the proverbial bone during the bankruptcy reorganization. It is estimated the newly forged deal will help the city save more than $1 million this year, which has been characterized as critical for Central Falls to resume any semblance of operational normalcy.

With more cities struggling with a host of financial challenges, most significantly entitlements, the issue could likely become increasingly common in the 26 states that allow municipal bankruptcy through Chapter 9 filings. While few believe Chapter 9 will become an epidemic, it certainly bears watching given the state of budgets out there.

“There are big problems for a lot of these municipalities, especially the collective bargaining agreements that have built in generous retirement obligations,” said Bruce Nathan, Esq., of Lowenstein Sadler PC. “I think you will see this continue and increase well beyond this year. If state laws can be complied with, why wouldn’t [struggling municipalities] do it if this is an option for them to deal with their financial problems?”

(Note: More on this topic and the court cases of greatest important to credit professionals will be featured in the upcoming, February edition of Business Credit Magazine. Look for it in about two weeks).

Brian Shappell, NACM staff writer

The Credit Managers' Index, to be unveiled Wednesday afternoon, is set to show the overall index was largely unchanged over the last month. But, given that September had been seen as a major success, that’s not necessarily such a bad thing. What is a bad thing, even if it’s likely to be short-lived, is the noticeable drop in sales levels.

Perhaps the quickest, most accurate way to describe the to-be-unveiled CMI is to use just two words: mixed bag.

“If one is of a more pessimistic bent, there is the continued high rate of unemployment, the struggles in the housing sector and the sense that nobody in the political realm has a clue what to do about any of this,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “There is the mess in Europe, the gyrations in stocks and consumer polls that suggest that vast numbers of people are in bed with the covers pulled over their heads. If you tend toward optimistic, there is something for you as well, especially recently.”

Perhaps the reason for those optimistic lies in the stability in recent months for the manufacturing sector, which is said to continue in November and reflect strength found in May, before a disconcerting summer dip. Additionally, market-watchers may be licking their chops on the news that Black Friday and Cyber Monday sales figures were up significantly. However, those numbers won’t actually show up in the CMI statistics until next month Without the holiday sale/marketing-inspired shopping numbers, sales will be off quite a bit in November and are said to track at the lowest level of the year.

Most economic indicators were pretty stable, aside from the dwindling number of bankruptcy filings. Kuehl, who prepares the CMI, notes the feeling is most companies that were going to file or fold have already done so. Granted, U.S. businesses haven’t purged all financial issues, “but, going forward, many companies will see opportunities to gain market share from those competitors that have left the scene and that strengthens their ability to gain momentum in the coming year,” the economist said.

(Editor’s Note: The November CMI will be release through various sources this afternoon. Check back at www.nacm.org in the home page’s news scroll to get all of the November CMI statistics and analysis).

Brian Shappell, NACM staff writer

American Airlines filed for bankruptcy protection this morning, taking the road that many of the company’s competitors have taken in years prior.

AMR Corp., the holding company of American Airlines, and AMR Eagle Holding Corp., the holding company of American Airlines’ regional carrier, American Eagle, filed their Chapter 11 petitions this morning in the U.S. Bankruptcy Court for the Southern District of New York, despite the fact that both are headquartered in Fort Worth, TX. In a release, AMR’s Board of Directors noted that the filing would hopefully allow the company to achieve a cost and debt structure that is industry competitive, thereby assuring its long-term survival.

According to AMR’s most recent quarterly balance sheet, the company has $24.72 billion in assets and $29.55 billion in liabilities. It also has $4.1 billion in unrestricted cash and short-term investments, which the company said should be enough to ensure that vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the reorganization according to terms. AMR’s cash position also suggests that debtor-in-possession financing is neither considered necessary nor anticipated.

In an FAQ for suppliers and trading partners, AMR was mum on what sort of payment unsecured creditors could expect to see on their pre-petition claims. “It is impossible to predict before approval of the plan of reorganization how much holders of general unsecured claims will receive,” said the company. However, AMR also filed a separate motion with the court asking permission to pay certain foreign suppliers and vendors certain pre-petition obligations, meaning that these non-U.S. based companies may see payment sooner than later. The company said that it expects the court to approve the motion.

"Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges, " said AMR Chairman, CEO and President Thomas Horton. "Our Board decided that it was necessary to take this step now to restore the Company's profitability, operating flexibility, and financial strength."

Jacob Barron, CICP, NACM staff writer

The dangerous game U.S. lawmakers and businesses are playing on the issues of trade and currency policy in China, ones that perceivably give them unfair market advantages, took another step forward as a group of solar energy product manufacturers have fired a proverbial shot across the Chinese bow.

Stung by a steep downturned caused as much by foreign competition as domestic saturation or the economic malaise at home, a group of solar product manufacturers has filed a formal petition asking for significant duties/tariffs on Chinese-made imports of such products. The Coalition for American Solar Manufacturing, comprised of more than a half dozen U.S.-based firms lead by SolarWorld Industries America Inc., alleges China has been offering its producers illegal subsides, and its companies are “dumping” products in the United States, selling them at artificially low prices to undercut producers here.

The filing has generated at least some interest from the U.S. Department of Commerce and International Trade Commission. It comes in the same month as a hot, renewed push by the U.S. Senate on a proposed bill to demand the Chinese government allow its perceived artificially low currency value appreciate to appropriate, accurate levels. The perceived undervalued currency provides what many have seen as a massive trade advantage over its partners.

Chinese government and solar manufacturing officials denounced the move, with talk similar to that following the proposed Senate bill. Parties bandied about words like “protectionism” and argued the move could hurt both trade relations and the entire solar/alternative energy movement itself.

The highly publicized coalition filing comes on the heels of massive struggles on the part of U.S. solar product manufacturers. Stirling Energy Systems Inc. is the most recent to file for Chapter 7 protection in U.S. Bankruptcy Court in Delaware. It followed previous filings by SpectraWatt Inc., Solar and recently controversial Solyndra, a firm with ties to the Obama Administration reportedly being investigated federally for fraudulent business practices. Months before, BP solar operation halted its Maryland-based solar activities in favor of relocation abroad. The common theme outlined by all five solar operators was this: they can no longer compete with Asian producers who are undercutting them so drastically on pricing and costs.

Brian Shappell, NACM staff writer

In what has potential to emerge as a late 2011/early 2012 buzz topic, another state has moved to toughen the process for debt-saddled municipalities to declare for bankruptcy protection.

California Gov. Edmund “Jerry” Brown this week signed Assembly Bill 506, which will require municipalities seeking the ability to file Chapter 9 to either declare a fiscal emergency or document efforts to negotiate with creditors prior to such a filing. Though promoting it as otherwise, the move appears to be a thinly veiled effort to pump the brakes on the slowly emerging trend of municipalities considering Chapter 9 as an increasingly viable option to beat financial woes. Pennsylvania promoted somewhat similar legislation over the summer.
Brown said the legislation “puts in place reasonable steps for local governments to take before filing bankruptcy…let’s be clear, this bill does not prevent a municipality from declaring bankruptcy or even throw roadblocks in its path.” He continued the goal was to find “alternative, less drastic solutions” then filing.

The municipal bankruptcy issue has become an increasingly hot one for businesses/creditors that do significant selling on terms to municipalities, especially ones now struggling, amid the ongoing financial crisis and increasing entitlement issues. This year, about a half-dozen municipalities filed for protection under Chapter 9 with the latest of which emanating out of Central Falls, RI. Jefferson County, AL narrowly avoided it thanks to a $1 billion renegotiation approved by debt-holders tied to a sewer rehab project, and Harrisburg, PA continues to weigh what appear to be a very narrow set of options as creditors for a failed trash-incineration project haven’t been so flexible.

Bruce Nathan, Esq., of Lowenstein Sandler PC, who is presenting an NACM teleconference Wednesday on the municipal bankruptcy issue, listed skyrocketing health care and pension obligations as well as lower revenue and construction-related debts both tied to the ongoing economic downturn among top reasons for the growing trend. He noted that specifically in California, the state capital city of Sacramento alone has unfunded retiree health care liabilities of $245.6 million and that the bankruptcy filing in the city of Vallejo is among the largest in U.S. history.

For more information on or to register for Wednesday’s teleconference on this topic and how it will affect credit managers, click here.

Brian Shappell, NACM staff writer