National Association of Credit Management

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

Though the trade surplus again grew this month, news late this week of a slowdown in the pace of Chinese growth sent some ripples through the markets in Asia and the rest of the world. Still, there is very little consensus on what this really means. And, is 8.3% growth really a bad thing?

The fact is that China’s leaders set a target for growth that is 7.5% to bring down inflation levels and, thus far, the economy continues to grow faster than that. However, the slowdown in Chinese growth has not been entirely due to these internal decisions, which is part of the concern.

The sense is that China does not consider the lower demand shown in February trade statistics as foreshadowing a crisis, but they are not ignoring the implications either. China soon will be getting a new set of leaders, and there will be pressure on this new team to show that they have the issues in China well in hand. The population is still expanding in China, and there is still a need to find over 1.3 million jobs a month to accommodate the new arrivals into the workforce. At the same time China is well aware that the aging population is going to put a strain on the working population over the next few years. The country can’t afford to stagnate when it comes to expansion, and that will put a damper on the inflation effort sooner or later.

NOTE: For more information on FCIB’s two-day “Doing Business in China” webinar (May 9-10), or to register, click here: http://tinyurl.com/7fpc95h. To take part in FCIB’s International Credit and Collection Survey on the topic of the BRIC (Brazil, Russia, India, China) Nations, click here: http://tinyurl.com/847jwqq.

Chris Kuehl, PhD, NACM economist
 

The rising costs of energy undoubtedly continues to put a burden on businesses around the globe. Still, exporting remains an area of optimism for several of the strongest international economies, as seems to be illustrated by statistics unveiled this week.

In Germany, a trade official said Wednesday that demand in fast-emerging Asian markets was becoming more important to business there than ever, as economic problems mount in European Union nations historically known for buying German products. As such, developing nations in the Far East warrant more attention. Nodding to the reality of the European Union’s deep financial problems, especially among its southern members, BGA President Anton Boerner declared that the EU was “losing importance” as far as export destinations go.

In China, market-watchers were surprised by this week’s news of a near $5.4 billion (USD) trade surplus on surging exports in March. Chinese officials pinned the increase to renewed appetite from U.S.-based buyers at a rate that is higher than expected at this point. China, amid growing concern over lower domestic demand, drew concern of market-watchers by reporting a $31.5 billion trade deficit just one month ago.

Meanwhile, in the United States, exports hit a record high amid demand from the Chinese and the more stable economies within the euro zone. The Obama Administration has been pushing for and easing businesses’ transition into accelerated exporting activity as the domestic economic recovery trudges slowly along. Despite the exporting record this month, it’s not all rosy for U.S. businesses in the trade game – costs of exporting and importing have increased substantial of late, especially in March (see more on this in the current edition of eNews, available late Thursday afternoon).

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
 

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
 

The U.S. Bankruptcy Court located in Delaware recently got over being the venue for some high-profile bankruptcy cases. And though bankruptcy filing levels appear to be on a significant downswing, the court in the first state of the union will hear a pair of cases likely to gain their own widespread attention in the mainstream media.

“Pink slime” became a new phrase in the lexicon of America’s consciousness followed by fast-spreading stories, which gained intense notoriety through social media sharing, of the use of chemical-laden meat additive used widely by restaurants, especially fast food outfits. The public backlash caused a drastic reduction in orders and, thus, those in the meat additive industry are struggling.

As such, the first industry Chapter 11 bankruptcy filing—not expected to be the last—comes from AFA Foods, which cited media coverage and its impact on sales to explain an inability to pay debts owed to secured and unsecured creditors. Even the case’s judge, Mary Walrath, has expressed skepticism in its reorganization prospects. It has been reported that a quick company sale might be the most optimistic option.

From processed meat to another troubled industry, solar products development, yet another in a spate of filings came this week. Solar Trust of America LLC, began having liquidity problems stemming largely from issues at parent company Solar Millennium AG. The parent company, based in Germany, was trying to sell Solar Trust but could not finish the deal before filing its own bankruptcy in Europe.

The case is significant because Solar Trust owns development rights to the world’s largest solar power project, the Blyth Solar Power Project, in California. Just one year ago, it garnered a conditional loan from the U.S. Department of Energy exceeding $2 billion, almost ensuring the Republican Party will dredge up the issue as the presidential election approaches. The Obama Administration is still recovering from the hit it took when Solyndra, a company with deep ties to President Barack Obama being investigated for fraud, filed bankruptcy months ago. More than a half-dozen other solar-related companies have filed for some form of bankruptcy protection since late last summer, most of which tied to oversaturation in the U.S. market and an inability to compete on price with Asian manufacturers of solar products.

Brian Shappell, CBA, NACM staff writer
 

Despite statistics illustrating a surprise trade surplus in recent weeks (as noted in NACM eNews), the mood of the Japanese manufacturer improved only a little in the last few weeks as the Bank of Japan managed to blast the yen back to some measure of respectability. However, by all accounts, the reprieve will be short-lived, and the yen will start to ramp up again.

The dollar is not showing any signs of rebounding despite the fact the largely positive economic data of late. The euro is in the tank, and there it shall stay. The yen is still the chosen refuge of some global currency traders, and that will become manifest in the weeks ahead. The exporters know they are living on borrowed time.

The Japanese export dependence still is a drag on the economy, but it is very hard to break that pattern. Japan  simply lacks the aggressive consumer on which the United States can depend. The domestic economy will not jumpstart the Japanese, and it rarely has. The major hope in Japan still rests on the recovery of the U.S. consumer and their appetite for the goods that Japanese companies still manufacture better than the Chinese.

Chris Kuehl, PhD, NACM economist
 

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

Statistics to be released tomorrow outlining results of the Credit Managers’ Index (CMI) for March could give credence to an economic recovery that is well-founded and real.

It appears the story of the latest index will be one of improvements in the area of unfavorable factors. This is expected to be particularly noticeable in a pair of subcategories: accounts placed for collection and disputes. Dollar amount of customer deduction is also a category expected to track at better levels than most of the last year, as well.

Perhaps a big part of the positive momentum is that the weeding out process, so to speak, has almost run its course from a business standpoint. NACM Economist Chris Kuehl, PhD, said most of the weakest, poorest run companies have “gone by the wayside,” which has afforded opportunities for the survivors.

“The fact is that, during a boom period, there are many companies surviving and even thriving in spite of themselves,” Kuehl said. “They are not all that well run and succeed mostly because everybody is succeeding in the boom.” He added that it is now the point when the stronger competitors are able to finally reassert themselves and get the pricing they need to succeed long term.

Check back tomorrow at NACM’s website (www.nacm.org) for the full statistics and analysis of this month’s CMI.

Brian Shappell, CBA, NACM staff writer
 

Last week, Japan’s finance ministry reported the value of exports at 5.44 trillion yen, and imports coming in just short of 5.41 trillion yen. The trade surplus, which came even as exports dropped by 2.7% and imports rose 9.2% compared to the previous February, surprised market-watchers and drew claims of a resilient Japanese economy that wasn’t given enough credit as it recovers from last year’s natural disasters.

NACM Economist Chris Kuehl, who was among several who noted in March's edition of Business Credit that noted “fear” for the Japanese economic and trade outlooks going forward, admitted “unmistakable progress” has taken place there, However, there reasons for deep concern have not full faded…far from it, actually.

“The endemic issues that have plagued Japan for over two decades have hardly disappeared, and they will continue to be a drag on the economy unless there are some fundamental changes made to chronic structural flaws,” said Kuehl. The biggest threats are as follows:

• How the nation handles its energy needs, especially with an expected, perhaps unavoidable movement away from nuclear power, at least in the short-term.
• Can the export sector overcome advantages held by other regional nations’ manufacturing sectors, especially China, and the overly high, even troublesome value of the yen as investors take money out of the euro.
• One word: debt…the debt-to-GDP ratio presently is tracking at an astonishing 225%.

Brian Shappell, CBA, NACM staff writer
 

Labor contracts, especially those related to pensions and other entitlements, appear to be a common factor for a couple of U.S. cities that appear on the brink of municipal bankruptcy.

In Providence, RI this week, former state Supreme Court justice and the state-appointed receiver for the Rhode Island’s Central Falls bankruptcy from last summer, deemed a Chapter 9 for the city essentially unavoidable.  To wit, its mayor, Angel Taveres, noted the city could go broke by June without concessions on said contracts/entitlement agreements. Such an argument forced an out-of-court settlement between Central Falls, RI and its retired workers following that municipality's 2011 Chapter 9 filing.

There now is more evidence than ever that Stockton, CA is heading toward municipal bankruptcy, as well. Former U.S. Bankruptcy Court Judge Ralph Mabey has been tasked with the role of mediator in Stockton’s debt negotiations -- mediation now is required per a 2011 California law forcing parties to the table for up to 90 days prior to a Chapter 9 filing being allowed. Stockton officials have become the first to begin going through the new mandate’s mediation process. If filed, Stockton would unseat Jefferson County, AL -- a case recently allowed to continue after being deemed valid by a bankruptcy judge -- as the largest municipal bankruptcy filing in U.S. history.

Brian Shappell, CBA, 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

The Commerce Department and Obama Administration wanted to send a message to China that it knew there was unfair assistance going to those in its solar products manufacturing sector from the government, and thus, imposed a tariff. However, most analysts and domestic solar producers lambasted the tariff as a shockingly weak inroad at punishing Chinese manufacturers with a perceived unfair advantage, at best, and a death knell into insolvency for some badly struggling U.S. producers at worst.

Commerce announced it believed the Chinese government was illegally subsidizing companies producing solar energy products there, and the companies, in turn, have been dumping its products in the United States at artificially low prices, hurting American competitors. It responded with the announcement of a tariff – a widely anticipated move that had market-watchers predicting it could be set at 20%, perhaps 30%. Instead, Commerce emerged Tuesday with an underwhelming range for the tariff: 2.9% to 4.3%. In essence, the move was not greeted as something that would help domestic producers in any significant fashion, all while further antagonizing key trade officials in China who have been engaged in a trade-based rhetoric battle with its U.S. counterparts recently. For their part, Chinese officials proclaimed such a tariff, in the end, would drastically increase prices and decrease availability of solar energy products in the world market.
 

Brian Shappell, NACM staff writer

Effective Tuesday, Washington Mutual officially has completed the Chapter 11 bankruptcy restructuring process that spanned nearly three-and-a-half litigious years.

WaMu, which will emerge as a much smaller company under the WMI Holdings moniker, confirmed that its bankruptcy plan approved in on Feb. 23 indeed has gone effective. It is now planning to begin the payment of nearly $7 billion to creditors (or, in many cases, the hedge funds that bought up assets from creditors who went bankruptcy during WaMu’s lengthy restructure).

It was the second largest corporate bankruptcy in U.S. history behind Lehman Brothers which, coincidentally, both went into bankruptcy protection mere weeks before WaMu did the same in September 2008 and emerged from the legal process weeks before it this year.
In February, Judge Mary Walrath approved the Washington Mutual (WaMu) reorganization plan in a case viewed as somewhat of a small victory for lower-level creditors. Even though most will receive pennies on the dollar as a result of the expense of a drawn-out case, it was a shock to many market-watchers that lower level creditors were able to recoup anything. It also found that the court, or at least Walrath, was not as willing to promote secured, senior creditors on the backs of others to the extent many believed would occur.

Marked by their size, drastically different plans and legal wrangling between creditors, attorneys and judges have characterized Lehman Brothers and WaMu as the two most difficult bankruptcy proceedings seen in U.S. court history. If nothing else, the cases may have illustrated the versatility and adaptability of the Chapter 11 system as the key take-away from the proceedings.

"To process the claims and have some sense of order going forward was quite an achievement," said Scott Cargill, Esq. of Counsel at Lowenstein Sandler PC in a late 2011 NACM interview about the implications of the massive reorganization cases. "In 2008, there were a lot of fears about whether our restructuring system could even handle something like this."

Brian Shappell, 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

The Federal Reserve reports from New York and Philadelphia showed some very nice progress this month, a positive sign given the makeup of the manufacturing community in this region. The two reports cover some older industrial areas and represent diverse consumer sectors, from high tech and electronics to apparel to steel.

There also is a very large population affected by the reports, as these are some of the most densely populated cities in the nation. If there is progress in this region, it suggests that manufacturers are seeing gains across a wide variety of consumer sectors. Additionally, growth here is likely to make a more significant dent in the unemployment rate than growth in the energy regions such as the Dakotas.

The New York Fed saw its business index rise from 19.53 in February to 20.51 in March. This may not seem like a major jump, but this is the highest level the index has reached since 2010. There was a similar hike in the Philadelphia index as it moved from 10.2 to 12.5, which is the best reading it has seen since 2011. It was only a few months ago that both regions seemed to be slacking off and that had created some alarm.
    
Analysis: One of the most encouraging pieces of this data relates to both the slump in the last few months of last year and the recovery at the start of this one. One factor that led to the decline in the last quarter of 2011 was that these two regions are especially sensitive to the conditions in Europe.
Now that the numbers are looking better, does that mean that Europe is back in the thick of things again?

There has been some improvement in the prospects for the euro zone, but not enough to bolster the manufacturing sector that much. The fact is that companies in this region have broadened their markets considerably in the last year and that is starting to pay off. These companies are selling into Latin America and even to Asia, which makes them less vulnerable to the vagaries of business in Europe.

Chris Kuehl, PhD, NACM economist

Although officials seem eager to trot out headline after headline of positive economic news, the U.S. economy isn’t out of the woods yet. In fact, the U.S. recovery could be derailed by a number of factors, and one economist at yesterday’s FCIB International Profit Summit held in New York described caution about the American economy “well-founded.”

In his keynote address, Byron Shoulton, vice president and international economist with FCIA Management Co., Inc., noted that despite the nation’s “gradual” recovery, a number of factors could erase many of the gains made recently in employment, manufacturing and consumer confidence.

“The U.S. economy has shown glimmers of improvement over the last few months,” said Shoulton. “Job creation appears to be buoyant, with something like 200,000 jobs per month being produced here in the U.S., and growth in manufacturing and even existing home sales are starting to pick up. Car sales, for example, have been higher the last four months than they have been for three years, and even the banks, while they’re concerned with Basel III and the Dodd-Frank requirements, are showing a bit more select willingness to lend.”

(Note: More coverage of FCIB's International Profit Summit available now at the FCIB Twitter page -- under the handle/moniker "FCIB_Global"...as well as Thursday afternoon in the lead story of NACM's eNews at www.nacm.org and in the May edition of Business Credit Magazine, available at the end of the month).

Jacob Barron, CICP, NACM staff writer

China's busy week from a business perspective saw it announcing plans to offer loan specifically in its currency (re: NOT the dollar) exclusively to BRICs members and being hit with a WTO suit emanating from three continents worth of nations unhappy with its trade practice. Perhaps the most interesting matter, however, was China successfully pressur ing India to turn over on a just-introduced product export ban.  

Last week, India shocked markets with an announced ban of cotton and like-fiber exports. Despite textile manufacturers’ requests for assistance, as the commodities market activity has caused massive pricing problems for its domestic business, China’s high consumption demand seems to have won out just days later.

In a bit of a show of power last week, China howled at the new ban to the extent that it was overturned in less than seven days. For its part, Indian officials went into damage control mode, saying their decision to acquiesce on the ban was rooted more in complaints from its own domestic growers over pricing damage than of outside criticism. Most market-watchers aren't seeing it that way.

India’s previous ban on cotton exports in April 2010 caused a notable pricing surge, and a new one appeared to be forming again until Chinese interests essentially put the kybosh on the effort. The chain of events comes at an interesting time since representatives from both governments will take part in a BRICs summit to be held in India in late March. Brazil, Russia as well as faux-BRIC member South Africa will also send officials to the meeting.

(Note: More on various business- and credit-related happenings in China in this week's eNews, available late Thursday afternoon at www.nacm.org).

Brian Shappell, NACM staff writer