Jake Blog

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

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

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

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

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

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

- Brian Shappell, CBA, NACM staff writer

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

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

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

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

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

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

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

Jacob Barron, CICP, NACM staff writer
 

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

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

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

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

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

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

Brian Shappell, CBA, NACM staff writer

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

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

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

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

Jacob Barron, CICP, NACM staff writer
 

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

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

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

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

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

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

Jacob Barron, CICP, NACM staff writer
 

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

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

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

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

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

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

Jacob Barron, CICP, NACM staff writer
 

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

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

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

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

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

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

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

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

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

Jacob Barron, CICP, NACM staff writer
 

The Commerce Department (DOC) reported this morning that U.S. economic growth had slowed in the first quarter of 2012. Gross domestic product (GDP) increased at an annual rate of 2.2%, compared to 3.0% in the fourth quarter of 2011.

While the slower growth is bound to raise concerns about the strength of the U.S. economic recovery, much of the negative aspects of the GDP report were offset by an increase in consumer spending. Personal consumption expenditures (PCE) increased by 2.9% in the first quarter, compared with an increase of 2.1% in the fourth of last year.

With business spending, the picture was just a mixed. Real exports of goods and services increased by 5.4% in the first quarter of 2012, compared with a 2.7% increase in the prior quarter, but overall business spending fell. Nonresidential investment decreased by 2.1% in the most recent report, in contrast to a much more robust 5.2% increase at the end of last year.

Further contributing to the deceleration was a continued decline in federal spending, albeit often at a lower clip. Overall, federal spending decreased by 5.6% in the first quarter, compared to a decrease of 6.9% in the fourth of 2011. National defense decreased by 8.1%, as opposed to last year's 12.1% freefall. Nondefense spending had experienced a 4.5% increase at the end of last year, but decreased by 0.6%, in the first three months of 2012.

The DOC's Bureau of Economic Analysis, responsible for issuing the quarterly readings, stressed that this 2.2% reading was an advance estimate, based on source data that are incomplete or subject to further revision by other agencies. A second, more accurate reading for the first quarter of 2012 will be released at the end of May.

Jacob Barron, CICP, NACM staff writer
 

A House panel approved legislation yesterday that would rescind the federal government’s authority to unwind failing financial institutions.

In a 31-26 vote, the House Financial Services Committee voted to repeal Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which grants regulators the authority to wind-down faltering firms in the interest of protecting the broader economy. The measure was included as part of bill designed to cut the deficit by $35 billion.

Republicans, including Financial Services Committee Chairman Spencer Bachus (R-AL), have long considered Title II a provision that institutionalizes bailouts. In addition to rolling back several other portions of the Dodd-Frank Act, the bill approved by the committee would repeal the Federal Deposit Insurance Corporation’s (FDIC’s) authority to lend to a failing firm, purchase the assets of a failing firm and guarantee the obligations of a failing firm. It would also eliminate the FDIC’s authority to borrow up to a percentage of the book value of a failed firm’s total consolidated assets in the days following its appointment as receiver.

As far as the repeal of Title II’s effect on the federal budget, Bachus cited a Congressional Budget Office (CBO) report which pegged the proposal’s savings at $22 billion over 10 years. Democrats countered, however, that as designed, Title II would eventually recoup any money borrowed from the taxpayer, typically by assessing fees on larger financial institutions.

In a letter prior to the committee’s vote, Treasury Secretary Tim Geithner urged Chairman Bachus to rethink his attempts to reduce the nation’s deficit by essentially gutting the Dodd-Frank Act, arguing that any budget savings would be erased by the costs of future crises. “Title II…prohibits the government from bailing out failing financial institutions, provides authority to break up or unwind those institutions and ensures that major financial institutions, rather than the taxpayer, bear the costs of future financial crises,” said Geithner. “By eliminating this authority, this provision would critically undermine the government’s ability to limit the damage to the economy in the event on future financial crises.”

“This provision was carefully designed to have no cost to the taxpayer over the long run,” he added. “Eliminating this provision would increase the risk that future financial crises would increase future deficits.”

Despite the committee’s approval of the bill, it has little chance of passing the Democratically-controlled Senate. Nonetheless, it could serve as a blueprint for future Republican attempts to undo the Dodd-Frank Act should the party retake the Senate or the White House, or both, in November.

Jacob Barron, CICP, NACM staff writer

The U.S.-Colombia free trade agreement (FTA) will enter into force next month, far sooner than many initially expected.

During the Summit of the Americas in Colombia this past weekend, President Barack Obama announced that the FTA will take effect on May 15, allowing over 80% of U.S. exports of consumer and industrial products to enter Colombia duty free. These include agricultural and construction equipment, building products, aircraft and parts, fertilizers, information technology equipment, medical scientific equipment and wood. Additionally, more than half of U.S. exports of agricultural commodities to Colombia will become duty-free, including wheat, barley, soybeans, high-quality beef, bacon and almost all fruit and vegetable products.

The ahead-of-schedule effective date comes as a result of quick work on the part of both nations to review each other’s laws and regulations related to the agreement’s implementation.

“This agreement will provide American businesses, farmers and ranchers with significantly improved access to the third largest economy in South America,” said U.S. Trade Ambassador Ron Kirk. “That means support for well-paying jobs at home.”

The agreement will also provide significant new access to Colombia’s $180 billion services market, supporting increased opportunities for U.S. service providers.

“This landmark agreement opens the door to new business opportunities, economic growth and job creation in the U.S. and Colombia,” said Thomas Donohue, president and CEO of the U.S. Chamber of Commerce. According to the Chamber, U.S. exports to Colombia have risen four-fold over the past decade, topping $14 billion last year. “Today our two countries can celebrate as we take our partnership to a new level.”

Congress approved FTAs with Panama, Colombia and South Korea last October. Panama’s remains the only FTA that has yet to earn an effective date. South Korea’s was implemented on March 15.

For more information on international trade, visit FCIB’s website at www.fcibglobal.com.

Jacob Barron, 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
 

Since joining forces in the early 2000s, Preston Brust and Chris Lucas, a duo better known as the LoCash Cowboys, have climbed their way up to country music's upper crust. Coming from humble beginnings in a Nashville saloon, Brust and Lucas have ridden their talent, energy and hard work to success after success, from appearances at shows and festivals all over the world, to the top of the charts with the LoCash-crafted #1 hit single, "You Gonna Fly," which was recorded by Keith Urban.

In anticipation of their third appeance at NACM's upcoming Credit Congress in Dallas, NACM Staff Writter Jacob Barron, CICP spoke with Lucas to discuss the band's roots and its bright future.

NACM: You were out of the country recently.

Yeah we were in Germany, Switzerland and Belgium. We did some Switzerland festival dates and then we did a Stars and Stripes tour for the military.

NACM: How was that? Was it the first time you guys were out of the country?

We’ve been to Mexico, but going to Germany, it was our first time for the troops and the military. It was awesome just being part of something big and to have helped the families over there when their husbands or wives are overseas in Afghanistan.

NACM: So were you playing mostly for the crowds at the U.S. bases?

Both. The foreign crowd, they love their country music over there. It’s unbelievable. We sold out of merch [merchandise] in the first day. I mean, I brought enough for 14 days and we sold out in one day. It’s crazy over there. They love American music. And with the Stars and Stripes tour, you get to go out and check the helicopters out and the jets and they walk you around and show you what our military’s really doing over there, and that was pretty interesting.

NACM: Speaking of, is there any difference for you guys playing European audiences instead of American audiences?

There is a difference and, I don’t want to offend anybody by it, but it’s like the European audience, they’re not as critical, because they don’t have the choices like America does. They just love music in general. You go over there, and I mean, they know what’s good and what’s not, but they’re not segregated by "well, this is just pop," or "this is just country." When you listen to a radio station over there they play everything. It’s really cool because they’re music lovers whether they’re country fans or not.

NACM: You guys have been playing together for a while now. Is there any city or venue that you most look forward to playing?

My favorite is definitely Baltimore, obviously, because my family’s there and it’s usually packed, but I’ll be honest with you, and I’m not just saying this, the Glass Cactus down there in Texas? It’s one of the best venues we’ve played. It’s really cool, like a Vegas-style club with a huge stage. The whole hotel is gorgeous, and the club is right next to the hotel.

NACM: So is the new album [called "This Is How We Do It"] done for the most part?

We’re releasing it in July, don’t have an exact date on it yet, but yeah, for the most part it is done. I think we’re just tightening it up on one or two more songs. Our new single "C-O-U-N-T-R-Y," comes out April 28th and May 1st.

NACM: Is there a difference between the first album and this one? I know the first one was self-released.

It’s like the grown-up version of LoCash. We had to do that first album to kind of get out what we were trying to express and what we were when we were younger, and I think through the years and on the road and writing with some huge artists and our producer Jeffrey Steele, you know, we wrote some great songs along the way and were like "we gotta come up with a big label project and we gotta come to the game, ready to win," and I belive we did that.

NACM: I wanted to ask, how did you and Preston come together as a group?

We actually both started working at the Wildhorse Saloon in Nashville, which is the sister to the Glass Cactus, and we just started hosting shows, teaching dance lessons, and we realized our banter back and forth on the microphone was cool. It was like Sinatra and Dean Martin all over again, and people were coming to see us rather than the bands. So then we finally looked at each other and said “man, do you sing?” I said “yeah, do you sing?” and he said “yeah,” so finally we started working on our harmonies backstage, going over some R&B songs, some country songs, some gospel songs, and we said "let’s do this right" and we went on the road.

NACM: How was that process? It seems like you guys had it pretty rough.

There was nothing easy about it <laughs>. We used to rock on tuna fish and macaroni and cheese, I mean, that was literally it. We would all take a van, anything we could drive like Preston’s old Grand Cherokee with no air conditioning, and we took it all out for four or five years since 2002, just kicking butt on every show and state there is. We did the old grassroots thing, the way they used to do it in the Motown days and the way they used to do it in the rock-n-roll days. Now we have some really serious fans who believe in us from 2002.

NACM: Did the success of "You Gonna Fly" really open things up for the group?

That’s probably the biggest thing so far, going number one. I seriously just got off the phone with Keith Urban like 45 minutes ago and I’m still smiling from ear to ear. You get a call like that and he’s thanking you for writing a song...it’s pretty amazing. And now we’re starting to see respect from radio stations, respect from bands that maybe weren't sure about us. You know, it’s all perception versus reality for a fan, and now they’re seeing us, saying "hey, these guys are partying with Keith, these guys, they had a Top 30 hit with their single," so the shows really ramp up.  We just played Indianapolis, and there was 20 people the first day we were there two or three years ago, and it was sold out this weekend.

NACM: What's the songwriting process like for you guys?

It’s collaborative. One of us will come up with a title, we’ll start there and then we’ll go to the hook and find something that we both believe in, and next thing you know it turns out great.

NACM: Is there anything I missed?

Yeah, you should tell everyone that I need my credit reviewed and fixed <laughs>. My credit sucks man, I need some help with it.

NACM: <laughs>I'm sure I know plenty of people who would be willing to do that.

Awesome.

For more information about NACM's upcoming Credit Congress, or to register, click here!

Many have argued that the Chapter 11 process, at least as it works for unsecured creditors, is broken. Among those advocating for changes to the Bankruptcy Code to better provide for trade creditors are not merely the scorned trade creditors themselves, but also a burgeoning class of legal professionals.

"Increasingly, Chapter 11 is a tool for a failing company to shed its assets and distribute its unencumbered cash proceeds, if any, to creditors," said Brett Weisenberg of Cooley LLP. "The exit strategies clearly provided for Chapter 11 debtors—confirmation of a liquidation plan or conversion of the case to Chapter 7, with their attendant delay, expense and risk—no longer adequately address the goals of the various constituencies within a liquidating Chapter 11."

Weisenberg is the author of an article titled "Expediting Chapter 11 Debtor's Distribution to Creditors," which will appear in this month's edition of the ABI Journal, published by the American Bankruptcy Institute (ABI). In it, he outlines a two-part proposal for changes to the Bankruptcy Code that would enhance Chapter 11 process effectiveness, specifically by providing for a "structured" dismissal of the Chapter 11 case in certain instances and a combined disclosure statement and plan hearing. "While many bankruptcy courts have authorized these alternative exit strategies as being permitted by the Code, the time is ripe to make crystal clear that these procedures are in fact authorized by the Code," said Weisenberg.

Such a structured dismissal would prevent debtors from languishing in bankruptcy when there's little reason to believe it will be successful. Weisenberg noted in his article that the criteria to use such a structured dismissal "should include (1) the debtor holding less cash to be distributed than some maximum amount, and (2) establishing, by a preponderance of the evidence, that (a) proceeding in the requested fashion is in the best interests of all creditors and (b) confirming that a Chapter 11 plan of liquidation would be overly burdensome or impractical under the specific facts of the case."

In theory, this would provide creditors with a better chance at greater recovery, since, rather than a lengthy, expensive and ultimately futile Chapter 11 process, the case would be dismissed, and authority granted to the debtor estate fiduciaries to make a distribution to creditors. Furthermore, the speed of the process would be increased by the combination of the disclosure statement and plan hearing, which Weisenberg noted was similar to the procedure used by small business debtors under Section 1125(f) of the Code.

Until these changes are made, however, Weisenberg said that creditors and bankruptcy professionals "will be forced to expend funds on an overly complicated and cumbersome plan-confirmation process, or be compelled to fight over whether utilizing these alternative exit strategies is permitted under the Code."

Learn more about NACM's positions on the Bankruptcy Code and other statutes in the 2012 NACM Issue Brief.

Jacob Barron, CICP, NACM staff writer

One would expect the managers of what’s often a company’s largest asset, its accounts receivable, to be pretty high on the invite list to upper management meetings. Sometimes this is the case, and sometimes it isn’t.

NACM’s monthly survey for March found that credit’s inclusion in top tier meetings was split pretty evenly, with about 51% responding that “yes,” they were included in meetings with upper management at their companies, and about 47% responding that “no,” they were not. The remaining 2% noted that the question was not applicable, often due to their company’s size or structure.

Some participants noted that their companies used meetings to let employees know how valued they are. “Our company does a nice job of making all employees feel part of the team. They understand that if an employee feels they are part of the process, they take ownership,” said one respondent. “Both corporate and divisional senior and executive management are very good about bringing credit into the conversation when there is a change or issue,” said another.

Others, however, considered their exclusion from such meetings a depressing sign of the company’s priorities. “We are included when it's convenient for upper management to have us there,” said one participant. “Otherwise, no we are not and a lot of times we are not even informed of any changes that may pertain to us in a timely fashion.”

“Management attention is mostly concentrated on operational areas involving production, revenue and sales. Credit functions are not a primary focus,” said another.

As some noted, this can create a rift between departments that are deemed worthy of inclusion at upper management meetings and those departments that are not. “Upper management…views the department as a necessity and keeps us in the background,” said one respondent. “Upper management does not portray or embody an attitude of cooperation and benefit between sales and the credit department. This continues to feed the sales versus credit atmosphere dividing the two departments.”

NACM’s April survey deals with accounting ratios and is now live. Participate today by clicking here, and be entered into a drawing to win a free teleconference registration.

Jacob Barron, CICP, NACM staff writer
 

If there was any federal agency that lawmakers were tripping over themselves to help, it’d be the Small Business Administration (SBA). Its close connection to the nation’s job creators is an easy source of political points for any interested legislator.

Yet, the SBA’s budget for Fiscal Year 2013 has recently received scrutiny for the agency’s skyrocketing cost of loan subsidies. At a hearing in the Senate Committee on Small Business and Entrepreneurship, Ranking Member Olympia Snowe (R-ME) grilled SBA Administrator Karen Mills on her agency’s ability to handle these increases.

“With our country’s economic recovery from the recent recession still lackluster at best, we must ensure that the SBA can be the catalyst small businesses require to get Americans back to work,” said Snowe. “That’s why it is critical the SBA establish a clear plan to reduce the subsidy costs in future years.”

From 2005 to 2009, the SBA’s flagship 7(a) and 504 loan programs operated at zero subsidy, meaning they paid for themselves through fees without any need for taxpayer support. In each of FY 2010 and FY 2011, however, the SBA required $80 million to subsidize these programs due to increased defaults, with subsidies ballooning to $350 million this year. “Looking at historical data, subsidies compared to the overall SBA budget continue to get higher every year, accounting for 12% of the total SBA budget in FY 2011; 26% in FY 2012; finally reaching an alarming 37% in FY 2013,” Snowe added. “This is the paramount issue in the Agency’s FY 2013 budget, and I urge the SBA to take these concerns seriously.”

It wasn’t all bad news for Mills, as Snowe tempered her concerns with effusive praise for Mills’ efforts to reduce the SBA’s administrative costs. “I have said that all Federal agencies, including the Small Business Administration, must tighten their belts during this difficult economic time, and I commend Administrator Mills for her effective management in this regard,” said Snowe. “Agency-wide overhead costs are largely held steady or reduced in this year’s budget request. Karen is demonstrating that the Federal government can and must do more with less, and I appreciate her leadership.”

Jacob Barron, CICP, NACM staff writer

A lot has been said about the Dodd-Frank bill, more completely referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act. But for a bill that seemed to react directly to an already-devastating financial crisis, few people have described it as “ahead of its time.”

In terms of international regulatory trends, however, that’s exactly what Dodd-Frank has turned out to be, according to Lael Brainard, undersecretary for international affairs at the U.S. Treasury. “By moving forward with this framework we really set the terms for the international debate and were able to move other countries to our framework,” she noted in a recent hearing on the international implications of the Dodd-Frank Act’s implementation. Brainard said that enacting the sweeping reforms included in the bill allowed the U.S. to influence related efforts conducted by authorities in other countries. Had the bill not been enacted when it was, “we would’ve been reacting,” she noted, adding that as implementation progresses, the U.S. is “elevating the world’s standards to our own.”

Conflicts have arisen across borders, however, and at the same hearing, titled “International Harmonization of Wall Street Reform: Orderly Liquidation, Derivatives and the Volcker Rule,” conducted this morning in the Senate Committee on Banking, Housing and Urban Affairs, one notable divergence between U.S. and international regulation could ensnare the world of trade finance.

In his testimony, acting head of the Office of the Comptroller of the Currency (OCC) John Walsh noted that Dodd-Frank requires federal agencies to rely less heavily on credit ratings as a measure of creditworthiness. In fact, it practically requires them not to rely on ratings at all. “Section 939(a) of the Dodd-Frank Act…requires all federal agencies to remove references to credit, and requirements of reliance on, credit ratings from their regulations and to replace them with appropriate alternatives for evaluating creditworthiness,” said Walsh.

On the other hand, the latest edition of the Basel capital requirements, Basel III, makes no such change. “Basel III, in contrast, continues to rely on credit ratings in many areas, making it difficult to implement those provisions domestically.”

Basel III already poses a threat to the world of trade finance by increasing the risk rating of these sorts of transactions, and ultimately making them more expensive for banks. As discussed in an article in the January 2012 edition of Business Credit magazine, the framework could lead banks to abandon the trade finance market altogether. Dodd-Frank’s requirements could increase the severity of this trade finance exodus, especially domestically, by making risk measurements harder to align with both the new U.S. regulations, and Basel III’s international counterparts. “The cumulative implementation will be challenging, particularly for community banks,” he noted.

For more information on global regulatory issues in banking and trade finance, be sure to check out FCIB’s International Credit Executives (I.C.E.) conference, which will feature a keynote presentation by Bart Chilton, commissioner of the U.S. Commodity Futures Trading Commission (CFTC). To find out more, or to register, click here.

Jacob Barron, CICP, NACM staff writer

U.S. job growth remained solid for the third straight month in February, as U.S. employers added a larger-than-expected 227,000 jobs. Although, the unemployment rate was unchanged at 8.3%, last month’s figures marked the first time since the beginning of last year that payrolls had grown by more than 200,000 for three consecutive months.

Furthermore, the Labor Department revised December’s jobs numbers up to 223,000 from 203,000, and revised January’s numbers up to 284,000 from 243,000.

Although this is good news, NACM Economist Chris Kuehl, PhD noted that there could be a less-talked-about downside to an ongoing trend of employment growth. “There really is no such thing as an unbridled piece of good news in the world of economics,” he said. “There are always trade-offs of one kind or another.”

In this case, the trade off comes with inflation, as one of the factors that accelerates this threat is higher wages and gains in unit labor costs. “There is evidence that unit labor costs are rising—and more rapidly than would be preferred given the state of the overall economy,” said Kuehl. “The rate of core inflation has been holding pretty steady for the past year or so, but that could be challenged soon by the rise in unit labor costs.”

To wit, earlier this week the Labor Department issued productivity and costs statistics for the fourth quarter of 2011, noting that the rate of increase in unit labor costs was 2.8%, more than double the rate that had been registered the month before. “At this point the pace is exceeding the rate of core inflation,” said Kuehl, noting that this won’t make inflation threats any less benign. “As unit labor costs rise, they eat into the profits of companies and affect the core pricing of products across the board,” he added. “This is one of the inflation signals the hawks have been worried about.”

Jacob Barron, CICP, NACM staff writer

Two global service providers recently joined forces to create a new way to facilitate trade finance.

SWIFT, a financial messaging provider for institutions in 210 countries, and the banking commission of the International Chamber of Commerce (ICC) collaborated on the Bank Payment Obligation (BPO), a new payment tool that can be used between banks and looks poised to enhance, or possibly replace, commercial and confirmed letters of credit.

The BPO essentially moves all of the manual tasks associated with using a commercial letter of credit and automates them, creating fewer chances for errors throughout the process. It represents an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date after a specific event has taken place, according to SWIFT-ICC. “This ‘specified event’ is evidenced by a ‘match’ report that has been generated by SWIFT’s Trade Services Utility (TSU), or any equivalent transaction matching application,” they added.

Interoperability between participating banks is made possible by the BPO’s reliance on a standard set of messages, each of which reflects events that have taken place in the physical supply chain, and “create trigger points for the provision of financial supply chain services.” For example, the bank’s systems could generate a message that proposes offering pre-shipment financing based on a trigger point that indicates the confirmed receipt of a purchase order, or a proposition of post-shipment financing based on the receipt of an approved invoice. In either case, the BPO would be used as collateral for the financing.

The reliance of all participating banks on the single messaging standard, called ISO 20022, takes the guesswork out of the documentary credit process. “Open account often fails to provide banks with access to underlying transaction data—impeding their ability to follow relevant events in the physical supply chain,” said SWIFT-ICC. “The BPO and related ISO 20022 messaging standards provide access to relevant data, records and reporting—giving banks the ability to provide risk mitigation, finance and payment services while introducing additional automation and efficiency into the supply chain management process.”

In other words, by matching data according to the messaging standard, banks get a front row seat for the entire supply chain process and can react immediately to the occurrence of certain events. Furthermore, matching the data automatically ultimately removes the subjectivity associated with the manual checking of documents. Instead of having to look at the actual documents and make a judgment call on whether or not they’re correct or in compliance, banks will know instantly if there’s an issue or if the documents are good to go. “There is no subjectivity attached to data matching,” said SWIFT-ICC. “It either matches, or it doesn’t.”

So far SWIFT and ICC have only signed an agreement confirming the framework for the future publication and maintenance of a set of contractual rules that will establish uniformity of practice in the market adoption of the BPO. Stay tuned to NACM’s blog for further developments.

Jacob Barron, CICP, NACM staff writer

Super Tuesday has come and gone, and the GOP’s 2012 presidential nomination process is officially…still a mess.

De facto frontrunner Mitt Romney picked up a number of delegates in Tuesday’s primary contests, increasing his already substantial lead over fellow candidates Rick Santorum, Newt Gingrich and Ron Paul. But the nature of Romney’s wins, and the respectable performances of his less establishment-friendly opponents, has left the primary picture as unclear as ever. All in all, Romney won contests in Alaska, Idaho, Massachusetts, Ohio, Vermont and Virginia, while Santorum drew on his considerable stock with Christian evangelicals to win North Dakota, Oklahoma and Tennessee. Gingrich won his home state of Georgia by a more than 20% margin, but didn’t finish higher than third anywhere else.

Romney’s win in Ohio, an important battleground state in the general election, was anything but decisive, and reflected the candidate’s ongoing image problem among American autoworkers. After overcoming his auto bailout criticism to ultimately win the Michigan primary last month, Romney again had to answer for his opposition in Ohio, a state where one in every eight jobs ties back to the auto industry.

In fall 2008, Romney authored a now-infamous op-ed piece in the New York Times titled “Let Detroit Go Bankrupt,” in which he sharply criticized President Barack Obama for using federal tax dollars to reorganize Chrysler and General Motors. The headline was misleading: Romney didn’t really propose letting the two auto titans go bankrupt completely, but instead suggested that the reorganization hinge on private financing rather than taxpayer money.

However, the Obama Administration has argued that private financing was nearly non-existent when the auto bailout was proposed and implemented, due to the then-ongoing credit crisis. And regardless of where the money came from, the auto bailout was largely successful. The entire effort breathed life into a once-moribund domestic auto industry, and became popular with investors and workers alike, especially those in states like Michigan and Ohio.

Romney’s opposition to the bailout ultimately cost him in Ohio, where he won on Tuesday by a mere percentage point, nearly losing to Santorum. Moreover, even if he does win the nomination, Romney’s middling performance practically guarantees that his “Let Detroit Go Bankrupt” sound bite will come back to haunt him in the auto-industry states in the general election.

Jacob Barron, CICP, NACM staff writer

Brazil’s overall GDP growth recovered a bit in the fourth quarter of 2011. After falling by 0.1% in the third quarter, the Brazilian economy grew by 0.3% to close out last year, bringing the real GDP growth for all of 2011 to 2.7%.

At first glance, this would appear to be good news. However, compared to 2010, which saw Brazilian GDP hit a blistering 7.5%, the 2.7% annual GDP figure begins to look far less impressive.

Due to the disappointing GDP growth, among many other reasons, Brazil’s efforts to contain further appreciation of the real are expected to continue for the foreseeable future. According to Fitch Ratings, exporters and investors can expect the government to remain focused on stimulating domestic growth throughout 2012 as demand for Brazilian exports remains under pressure.

Capital inflows have boosted the value of the real to the point where Brazil now has trouble competing globally, and all at a time when slow external demand growth has already weakened trade and current account balances. Fitch noted that as exports, industrial output and GDP growth slows, the Brazilian Central Bank (BCB) could continue to ease monetary policy by cutting the benchmark interest rate further.

But the BCB, and the country’s Ministry of Finance have already begun to take actions that seek to curb capital inflows into Brazil in an effort to cool the real’s appreciation. Last week, the Ministry of Finance announced that it would extend the 6% transaction tax on foreign loans to maturities of three years, up from two years, while the BCB imposed tougher limits on certain types of trade financing. Specifically, the BCB’s latest regulation exempted export prepayment loans from taxes for maturities shorter than 360 days. Transactions that last longer will be forced to pay the previously mentioned 6% transaction tax, and only importers will be allowed to take out these trade financing transactions.

Despite the continued efforts of the BCB to slow down the real, which has appreciated by 10% since the start of 2012, Fitch expects Brazilian growth to improve to 3.2% this year.

Jacob Barron, CICP, NACM staff writer