CMA Daily News

Subcontractors Say Payment Issues "Very Serious"

In the fall of 2007, 1,000 randomly selected ASA members had the opportunity to speak out about which construction industry issues concern them most in the biennial ASA Member Needs Assessment — a survey ASA uses to set priorities. Five issues, mainly payment-related, rose to the fore, and will be the main topics for ASA's advocacy and education efforts over the course of the next two years. Slow final payment figured most prominently in the results with nearly 73% of participants rating the issue as "very serious." Coming in second was pay-if-paid, which 64.5% of respondents rated "very serious." This was followed by indemnification/hold harmless (64%), retainage (62.2%) and slow progress payments (60%). These results did not change dramatically from ASA's 2005 Member Needs Assessment, indicating that payment issues are still at the core of subcontractors' public policy challenges.

For more information on the complete results of the 2007 Member Needs Assessment, contact ASA Customer Service Manager Emily Yunker at 703-684-3450:1333, or eyunker@asa-hq.com.

Source: American Subcontractors Association

Vallejo one of few cities to use Chapter 9

By declaring bankruptcy, Vallejo has thrust itself into the national spotlight as a test case for thousands of floundering cities desperate to unload their extravagant public employee contracts.

"There's a wave of this coming across the U.S.," said Sajan George, an adviser to struggling public entities who worked on restructuring Orange County after it declared bankruptcy in 1994. "What happens in Vallejo could definitely set a precedent."

Battered by the plummeting housing market and skyrocketing public employee contracts, Vallejo made dubious history Tuesday night by becoming the largest California city to declare bankruptcy. The North Bay city of 117,000 was on track to start the fiscal year July 1 with a $16 million deficit and no money in reserve.

By declaring Chapter 9 bankruptcy, the city hopes to freeze its debts and gain time to renegotiate its police and fire contracts, which comprise about 74 percent of its $80 million general fund budget. It also hopes a judge will void part or all of the contracts, allowing the city and unions to start from scratch.

"It's clear the way we've been doing business has not served us well," said City Councilman Tom Bartee at Tuesday's meeting. "We have to change that."

Because so few public entities have declared bankruptcy, no one's sure how labor contracts will be affected. Vallejo's public safety unions have vowed to fight the proceedings, arguing that the city has plenty of money stashed in hidden accounts and is using bankruptcy to avoid paying police and fire fighters what they're owed.

The unions commissioned a report by Harvey Rose auditing firm in San Francisco that concluded the city has other ways to balance its budget besides slashing salaries, staffing and benefits, union leaders said. The report has not been made public because it's part of ongoing labor negotiations.

Meanwhile, the unions would like an independent state audit of Vallejo's books.

"We don't believe they're insolvent," said Vallejo police Detective Mat Mustard, vice president of the police union. "But by declaring bankruptcy, they've taken a financial crisis and turned it into a catastrophe. It's like using an elephant gun to shoot an ant."

It's very possible a judge will void Vallejo's labor contracts, George said. When airlines began filing bankruptcy several years ago, judges allowed them to renegotiate their union contracts, making bankruptcy an attractive option across the airline industry, he said.

Even so, bankruptcy is an extreme measure for a public entity, he said. Thousands of cities across the United States are in the same boat as Vallejo, but nearly all of them find other ways to avoid Chapter 9. They cut and outsource services, share services with neighboring cities, sell property and raise taxes and fees.

"Chapter 9 is still relatively unknown," he said. "It's not common now, but depending what happens in Vallejo it may become more common."

Vallejo intends to keep services at their current level throughout the bankruptcy proceedings, which are likely to take years, said city spokeswoman Joann West. But it's likely that the voters will be asked in November to pay higher taxes, several city council members said Tuesday.

Bankruptcy is not a cheap option. Legal fees may climb as high as $2 million, the city's credit rating will be damaged, developers and investors may avoid the city until its finances are resolved and property values may fall even further because of the public stigma, bankruptcy experts said.

The only other California city to declare bankruptcy is Desert Hot Springs, a city of about 20,000 near Palm Springs. Desert Hot Springs (Riverside County) filed Chapter 9 in 2001 after losing a lawsuit from a developer.

Bankruptcy allowed the city to continue providing services and pay its vendors, but at a steep price, said Mayor Yvonne Parks.

"I think there was a stigma," she said Thursday. "Developers and investors shied away from us. They came back eventually, but it was tough."

Still, the city was able to reorganize its finances, pay its debt and emerge from bankruptcy in 2004. This year the city earned an A credit rating, Parks said.

"Bankruptcy is not the worst thing in the world," she said. "I don't think anyone even thinks about bankruptcy when they visit Desert Hot Springs any more."

E-mail Carolyn Jones at carolynjones@sfchronicle.com.

Source: San Francisco Chronicle

Home Depot to close 15 poor-performing U.S. stores

Home Depot Inc. said Thursday that it would close 15 stores at a cost of 1,300 jobs and scrap plans for 50 new stores as the U.S. housing slump cripples sales.

Home Depot has now announced three rounds of job cuts this year. Of the 1,300 store jobs being cut this time, 50 are managers and assistant managers. None of the stores being shuttered are in California.

Source: Bloomberg

Linens 'n Things files for bankruptcy protection

Bedding- and home-furnishing retailer Linens 'n Things today filed for Chapter 11 bankruptcy protection, the latest major retailer to succumb to the difficult consumer environment.

It also said it will close 120 stores, almost a quarter of them in California.

Source: LA Times

Credit Problems Squeeze Retailers, Too

A record 7,000 U.S. stores could close this year, a retail analyst predicts, citing cuts in consumer spending and retailers' struggles to borrow money and fend off competition.

"We've got a very difficult situation in the retail business," says Howard Davidowitz, an independent analyst in New York. Several retail chains have filed for bankruptcy protection and another 15 or so are "on the edge," he says.

Retailers' debt jumped 30 percent in the past year, Davidowitz says.

"Just like consumer debt is up, corporate debt is up," he says. "Everybody's debt is up. It's a real danger."

Amid a tight credit market and banks suffering from the subprime mortgage mess, retailers are having trouble borrowing. Many retailers routinely use debt to finance their inventories, but that lifeline is harder to come by, Davidowitz says.

"This is a terrible time to be dependent on bank debt and be in trouble because the banks will be unmerciful...." he says. "There are many retailers out there ... who maybe could operate OK if they got some forbearance, but it's a terrible time to be dependent on bank debt."

Other factors are working against retailers. "Americans are spending less," Davidowitz says. "They've got the highest debt they've ever had." And consumers are spending more for food and energy, leaving less for discretionary purchases.

And, he says, "We have too many stores."

"We have 19 1/2 square feet [of retail space] for every man, woman and child in this country," Davidowitz says, suggesting that's nearly double what is needed.

Chains from Foot Locker to CompUSA have shuttered stores in the past year. In 2007, 4,500 stores folded, according to Davidowitz.

"Almost everybody closed because of too much competition," he says. "What happened? Wal-Mart came along and closed them down. The consumer made a choice to choose Wal-Mart. The prices were lower, the stores were bigger...."

SOURCE: NPR

U.S. Store Closings

A selected list of major recent retail closings:

• Foot Locker: 274 stores in 2007
• Ann Taylor Stores: 117 stores by 2010
• Zales: 100 stores
• Wilsons Leather: 158 stores
• Talbots: 78 Talbots kids' and men's stores by September
• Pacific Sunwear: 154 demo clothing stores
• CompUSA: 103 stores
• Bombay Co.: all 388 of its remaining stores
• Sharper Image: 96 stores
• Levitz Furniture: all 76 of its stores

Sources: Company statements and news reports.

Vallejo City Council Delays Bankruptcy Vote

Vallejo residents who thought they would know the decision about whether the city will file for bankruptcy are finding out they're still in a waiting game. Tuesday night was supposed to be the deadline for the city to strike a deal with its largest unions, police and fire -- which take about 75 percent of the city's budget. But a deal was not reached, and the council set May 6 as the new date to decide whether to go forward with bankruptcy.

Vallejo residents who attended the meeting demanded apologies and told the council to make the decisions or find someone who can, reported NBC11's Noelle Walker. The city will run out of money to pay its bills on June 30.

Debt Collection Done From India Appeals to U.S. Agencies

Although the stereotype of a collector may be “some guy with chains and a cut-off shirt,” Mr. Black said, collectors in India are “very polite, very respectful, and they don’t raise their voice.” He added, “People respond to that.”

Read the full story on Yahoo Finance.

Economic Woes Continue Business Bankruptcy Surge

The upward trend in business bankruptcies that began in 2007 has apparently continued through the first quarter of 2008 and looks to worsen as the nation's economy struggles through a recession, according to research and analysis from accounts receivable insurer Euler Hermes ACI.

According to information from the U.S. Bankruptcy Courts, 29 public companies sought either Chapter 7 or Chapter 11 bankruptcy protection between January 1 and March 31, an increase of 81.25% over the first quarter of 2007. Additionally, the size of the bankruptcies has continued to increase as evidenced by the total assets of the filings—in Q1 2007, the 16 public company bankruptcies featured combined assets totaling just over $1 billion; the 29 bankruptcies for Q1 2008 feature combined assets of nearly $10 billion.

The bankruptcy up-tick appears to continue the trend from 2007, when Euler Hermes ACI forecasted that the number of business bankruptcies would escalate by more than 50%. While final Q4 business bankruptcy numbers from the U.S. Bankruptcy Courts have yet to be released, the trend through the first three quarters of the year gave credence to the forecast.

"The escalation in bankruptcies is a direct result of the deterioration in the U.S. economy, which is now in recession," said Euler Hermes ACI Chief Economist Dan North. "Businesses are now facing a serious combination of factors which will almost certainly continue the trend of increased bankruptcies, including skyrocketing energy and commodities prices, plummeting house prices, job loss, a slowing consumer, record foreclosures and delinquencies and tightening credit conditions. Bankruptcies are likely to continue rising for the next year as the economy struggles through the recession."

Source: Euler Hermes ACI

Experian Adds a Blend of Commercial and Consumer Information to Credit Risk Advisor

Blended data provides credit managers with information on the business and the business owner to help them make better credit decisions

  Experian^®, a global information services company, today announced that its Credit Risk Advisor^SM product is enabling greater insight into a small business. By incorporating commercial information on the business and consumer information on the business owner, Credit Risk Advisor provides a more complete view into the overall creditworthiness of a small business. This allows credit managers to make small-business risk decisions with greater speed and accuracy.

“In today’s economy, more and more small-business owners are using their personal finances to meet their business obligations,” said Marc Kirshbaum, president of Experian’s Business Information Services. “By bringing together business and business owner information in Credit Risk Advisor, we help our clients improve their bottom-line performance by providing a tool that is significantly more predictive of small-business credit risk than using commercial data alone.”

A joint effort with eCredit^TM, Credit Risk Advisor is an end-to-end account and portfolio management tool that integrates eCredit’s credit decisioning technology with Experian’s robust data assets and predictive risk models, including the new addition of Small Business Intelliscore^SM. The service also includes automated workflow functionality and configurable decisioning criteria, enabling users to develop and easily implement a credit policy that identifies areas of risk and opportunity across their entire portfolio.

“Credit professionals are finding it more important than ever to employ resources that help them manage risk among their small-business customers,” said Jim Swift, president and CEO of eCredit. “Credit Risk Advisor is uniquely positioned to fill that need by providing a tool that combines Experian’s blended information and scoring models with eCredit’s proven automation technology, allowing them to analyze more companies and manage the risk of their entire portfolio.”

Contact Teresa Campos at CMA for information on how you can use Experian Credit Risk Advisor - 818-972-5361.

Equifax to Enter Russia

Equifax Inc. (NYSE: EFX) a global leader in information solutions, announced today it has agreed to acquire a 28 percent equity stake in Global Payments Credit Services LLC (GPCS), a leading credit information company in Russia, from Global Payments Europe, s.r.o., a subsidiary of Global Payments Inc. (NYSE:GPN), and Home Credit and Finance Bank of Russia (Home Credit). 

Pending regulatory approval, Equifax will re-brand the company and assume responsibility for its operations.  Based on meeting certain conditions in the Shareholder Agreement, Equifax will have the ability to acquire up to 50 percent, the current legal limit for any owner.

Equifax's plans for Russia reflect its execution against the company’s stated strategy to expand into the four targeted geographies of India, Russia, China and Mexico, where the company can leverage technology, data assets and analytics to help customers make critical business decisions in growing markets.  Equifax today operates in 14 countries in North America, Latin America and Europe, and recently announced its intent to enter India pending regulatory approvals.

Global Payments Europe and Home Credit have operated GPCS as a joint venture since acquiring the company in 2005.  Global Payments Europe is the leading provider of cashless payment services for corporate clients in the Czech Republic and also provides services to clients in Central and Eastern Europe and the Russian Federation.  Home Credit is the market leader in consumer finance in the Russian Federation and is committed to continue investing in its expansion in Russia by building new regional branches, bringing modern loan products and providing superb service to its customers.  It is a subsidiary of Home Credit B.V., a Netherlands based holding company.

“The growth in credit in the Russian economy provides a significant opportunity for Equifax to assist Russian financial institutions seeking a competitive advantage from credit information, analytics and value added services,” said Trey Loughran, Senior Vice President, Corporate Development, for Equifax.  “We are thrilled to be working with Global Payments Europe and Home Credit, established leaders in the Russia market with a considerable amount of experience and understanding of the Russian credit economy.  We fully expect that the combination of expertise from these established leaders and Equifax will allow Equifax Russia to be the leading provider of credit information solutions in Russia.”

In just three years, GPCS has built a database to include nearly 20 million records on over 14 million individuals from more than 50 data providers under contract.  This makes GPCS a leading credit bureau in Russia, according to the Central Catalog of Credit Histories, the regulator of credit bureaus for the Russian Federation.  Russia’s thriving economy has resulted in a fast-growing credit market – from mortgages and auto loans to express loans.  The Russian household lending market grew 75 percent in 2006 alone, to approximately US$32.5 billion.  Retail lending as a percentage of GDP is 8 percent, versus approximately 100 percent in the United States and 50 percent in Germany, indicating a significant potential for future credit growth.  Russia’s middle class has expanded considerably as monthly wages have doubled in the last three years and annual economic growth has hovered near 7 percent since 1999.  Recent legislation requiring Russian financial institutions to share data with at least one credit bureau has accelerated the credit information market in Russia and has allowed independent credit bureaus like GPCS to develop larger and more accurate data sets.

“We have managed to build a credit bureau with the largest database in Russia in just a few short years,” said Stanislav Coufal, Chairman of the Board for GPCS.  “We believe that our strong market position will be reinforced by our new partnership with Equifax.  Combining our large, high quality database with Equifax’s technologies should make for a winning combination.  We are looking forward to not only solidifying our leading credit bureau position, but also to accelerating its growth.”

Pavel Vyhnalek, the Group Chief Risk Officer for the Home Credit Group commented, “As Russia builds one of the world’s strongest economies, Home Credit as well as other lenders depend on a comprehensive and reliable credit reporting system to meet a skyrocketing appetite of individuals and families to purchase consumer goods and to keep loan portfolios within the targeted risk profile. In order to widen its recent customer base, Home Credit needs to partner with a strong, experienced and flexible provider of reliable credit assessment and customer verification that allows the bank to offer various lending products, including credit cards, across different consumer segments in Russia.  As the world’s leading credit reporting company, Equifax brings the necessary products, technologies and experience to build upon the foundation we created.”