The latest information on CFA's Advocacy, Legal and Public Relations activities.
CFA Advocacy Committee Wraps Up 2010 with Eye on Setting Agenda for Next Year
The CFA Advocacy Committee, chaired by Jill Zellmer of GE Capital, met for the final time in 2010 on November 16 to review activities for the year and to begin discussions about setting priorities for 2011. The Committee was very active, with the full Committee and its subcommittees meeting 10 times this year.
At the year's final meeting, the Committee heard reports from each of its subcommittees, getting updates on issues including Dodd-Frank Act rulemaking, small business bankruptcy legislation, the TOUSA bankruptcy case and other issues on which CFA was active on in 2010. The Committee also discussed the possibility of holding a legislative conference in Washington, DC in September 2011 that would be open to anyone in the commercial finance community with an interest in public policy issues affecting the industry.
The Committee, the guiding force behind CFA's active Advocacy Program, now consists of more than 30 members representing a cross section of the Association's membership. The Advocacy Committee will meet again in January to identify priorities and an agenda for CFA's Advocacy Program for 2011. Employees of CFA member companies or Education Foundation board members who would like to join the Committee should contact Brian Cove at firstname.lastname@example.org
. For more information on the Committee's activities, go to the Public Affairs section of www.cfa.com
CFA Members Discuss ABL Risk Ratings with OCC
On October 4, a delegation of members of the Advocacy Committee's OCC & ABL Issues Subcommittee held a conference call meeting with senior regulators from the Office of the Comptroller of the Currency (OCC) to discuss the treatment of asset-based credit facilities by bank examiners.
The meeting was a follow-up to a meeting CFA staff and representatives from its lobbying firm Butera & Andrews had with the OCC in May. At that meeting, the regulators maintained that the OCC had instituted a new training module for bank examiners that focused on ABL facilities that would provide for a more consistent treatment of those facilities during the Shared National Credits exam process. The regulators requested that CFA members wait to see the results of the SNC exams before providing their feedback.
As a follow-up to the May meeting, Subcommittee Chair Robert Arth of Bank of America Business Capital, Barry Bobrow of Wells Fargo Securities and Miles McManus of Citigroup met with Dave Wilson, OCC Deputy Comptroller for Market Risk and Darrin Benhart, OCC Director of Commercial Credit Policy in early October. Arth and the other Subcommittee members indicated to the regulators that while they had seen a marked improvement in the consistency of ABL classifications by examiners this year, many institutions had deals that received questionable ratings. The regulators acknowledged that inconsistencies remain and pledged to continue efforts to eliminate them in the SNC process.
The meeting between the regulators and the Subcommittee members was part of the dialogue that CFA hopes to continue to with the OCC in the future. The OCC & ABL Issues Subcommittee expects to meet in the coming weeks to discuss the next steps in continuing the dialogue.
Legislation & Regulation
Republican Takeover of the House Brings New Bankruptcy Agenda for House Judiciary Committee
In the aftermath of November's mid-term elections, control of the House of Representatives has changed hands, with Republican lawmakers assuming control of the chamber and all of its committees when it reconvenes in January.
The House Judiciary Committee, the body with jurisdiction over legislation affecting the federal bankruptcy code, will now be chaired by Representative Lamar Smith (R-TX). While the incoming chairman has yet to announce his agenda for the new session of Congress, discussions with Committee staff provided some hints as to what the Committee's agenda will be with regard to bankruptcy issues.
Staff members have indicated that the Committee will most likely examine possible adjustments to the Bankruptcy Code to make the bankruptcy process more accommodating for small businesses. However, Committee staff made it clear they will not be pushing for the approach advocated this year in the Senate that would have raised numerous concerns for secured creditors. Instead, the Committee may explore raising the debt limits in Chapter 13 so that small business owners who currently exceed them are not forced to file in Chapter 11.
The Committee may also hold oversight hearings to assess how changes made to the Code in 2005 relating to small businesses are working before considering further changes. For example, the 2005 amendments created a process that screened out hopeless cases that had no chance of successfully reorganizing and provided an expedited process for viable candidates for reorganization.
Other bankruptcy-related issues which the Committee expects to consider this year include adding additional bankruptcy judges, compensation for Chapter 7 trustees, and review of asbestos trusts. A more complete agenda is expected to be announced by the Committee once Congress reconvenes in January.
CFA's Advocacy Committee will be setting its agenda for the year at its January meeting. It is anticipated that the Committee will recommend pursuing a proactive agenda on bankruptcy issues, including a legislative fix to address the bankruptcy court's decision to bar credit bidding in last year's Philadelphia Newspapers case. In addition, the Advocacy Committee is expected to recommend that CFA work with the Judiciary Committee to address the inequitable treatment of secured lenders in preference claims made by bankruptcy trustees.
State Department Targets January Submission of UN Convention on Receivables
Officials at the U.S. State Department have indicated that the United Nations Convention on the Assignment of Receivables in International Trade will be submitted to the Senate Foreign Relations Committee ratification in January. Originally, the State Department expected to submit the treaty to the Senate over the summer but the internal review process all conventions must go through in the Executive branch took longer than anticipated.
Adopted by the UN General Assembly in 2001, the main objective of the Convention is to promote the movement of goods and services across national borders by facilitating increased access to lower-cost credit. In order to achieve this objective, the Convention removes legal obstacles to certain international financing practices, including asset-based lending and factoring.
The Convention addresses many of the key legal impediments confronting asset-based lenders and factors that seek to finance cross-border receivables, increasing transparency and predictability, and thereby reducing risk and cost. Among other things, the Convention:
- Recognizes assignments of future receivables, bulk assignments of receivables and assignments of partial or undivided interests in receivables, and eliminates the need to update documents as new receivables are generated or to provide detailed descriptions of assigned receivables.
- Overrides anti-assignment clauses in sales contracts.
- Establishes clear conflict-of-laws rules for determining priority of assignments.
- Safeguards the rights of account debtors, while prescribing rules for payment notices to, and setoffs by, account debtors.
- Offers alternative priority rules, including one based on a public notice filing system.
The Convention only becomes effective after adoption by five countries. To date, only Liberia has adopted it. There is strong consensus among supporters of the Convention that many countries are waiting for the U.S. to adopt the treaty before they follow suit. The CFA played a key advisory role in the six-year drafting process of the Convention and the U.S. State Department has called on the CFA to use its expertise in commercial finance to educate key members of the Senate and their staff, select members of the House of Representatives and executive branch officials about the benefits adoption of the Convention will bring to U.S. businesses. As the Convention is adopted by an increasing number of countries, cross-border receivables financing will become significantly easier and less costly to obtain. This will make additional credit available to U.S. companies, enabling them to compete more effectively in the global marketplace. It will also provide new lending opportunities for U.S. lenders and factors.
CFA's Advocacy Committee, working closely with CFA Co-General Counsel and staff, is in the process of creating an education program to help legislators and their staff learn more about the Convention and receivables financing.
Amendments to Bankruptcy Rule 2019 Move Closer to Adoption
Revisions to Bankruptcy Rule of Procedure 2019, designed to force distressed debt investors and other groups that form creditor committees in bankruptcy cases to disclose sensitive financial information are continuing to progress through the revision process.
Most recently, in September, the Judicial Conference of the United States Courts approved the proposed amendments to the rule. The revision will now be sent to the U.S. Supreme Court for adoption by April, 2011. The adopted rule changes will then be transmitted to the U.S. Congress. If Congress takes no action, the revised rule 2019 will go into effect in December, 2011.
Earlier in the process, the rulemakers adopted a recommendation submitted by the Commercial Finance Association to revise the proposed amendment to Rule 2019 to exempt lenders who serve as administrative agents in syndicated deals from proposed disclosure requirements.
As originally drafted, the broadly worded proposed rule would have also required the agent in a syndicated credit facility to disclose the "disclosable economic interest" of each and every individual debt holder in the lending facility and include the agent, regardless of its authority under the loan documents, as an "entity" that "represents more than one creditor" (namely, every lender in the lending syndicate), thereby requiring the agent to disclose the individual position of every lender in the syndicate.
In its comment letter, drafted by CFA's Co-General Counsel Jonathan Helfat of Otterbourg, Steindler, Houston & Rosen and Richard Kohn of Goldberg Kohn, CFA pointed out that the customary authority of agents in syndicated loan facilities does not include the right to compel disclosure by the lenders of their individual economic positions. For the most part, the agent acts at the direction of the lenders. Consequently, the agent would only disclose information about the lenders to the extent directed by the lenders. It is inconsistent with this basic paradigm to require the agent to direct the lenders to disclose information about their debt. More generally, the agent should not be the means for the disclosure by the individual lenders of their position. This is beyond the role that agents play in such facilities. Such disclosures should be made directly by the individual lenders.
To see CFA's comment letter, click here
A hearing was held Federal district court in Florida in late October in the bankruptcy case of Florida homebuilder TOUSA. The company filed for bankruptcy protection under Chapter 11 in January, 2008. After a thirteen day trial in the Southern District of Florida, Judge John K. Olson issued a decision in October, 2009 that set aside over $400 million in claims by secured lenders as fraudulent conveyances.
The Commercial Finance Association filed an amicus curiae brief in the case earlier this year, outlining its objections to the decision. At issue in this case is the enforceability of fraudulent conveyance "savings clauses." These clauses, which have been widely used by lenders for decades in corporate guarantees and co-borrowing arrangements (especially in "upstream" and "sidestream" guarantees), provide in essence that, if the guarantee or co-borrowing obligation is deemed to be a fraudulent conveyance under Section 548 of the Bankruptcy Code or applicable state fraudulent conveyance law, the obligation owing under the guarantee or co-borrowing arrangement is automatically reduced to a level where it would not constitute a fraudulent conveyance. In the first decision of its kind, Judge Olson ruled that savings clauses are unenforceable.
TOUSA's secured lenders, including Citicorp, NA and Wells Fargo have appealed the decision. Because of the ruling's potential impact on lenders' ability to limit the impact of fraudulent conveyance rulings on their financing agreements, the CFA filed an amicus brief on June 8, maintaining that savings clauses, which emerge from a strong tradition of savings clauses that are routinely enforced in other commercial contexts (such as usury savings clauses), are clearly enforceable as a matter of law, and that declaring them to be unenforceable will create a significant additional risk for lenders and thus have an adverse impact on the cost and availability of credit to borrowers.
The Court did not directly address the issues raised by CFA in its amicus brief during the October hearing. A decision is expected in the coming months.
CFA's brief, drafted by the Association's Co-General Counsel Richard Kohn of Goldberg Kohn and Jonathan Helfat of Otterbourg, Steindler, Houston & Rosen, can be viewed in its entirety by clicking here.
UNCITRAL Working Group Focuses on Secured Transactions Registries
The United Nations Commission on International Trade Law's (UNCITRAL) Working Group on Secured Transactions met in early November in Vienna, Austria to begin work on the drafting of a detailed guide on secured transactions registration systems.
The goal of the working group is to create a "how to" manual that countries wishing to update and modernize their secured transactions laws can use to establish effective registries that secured lenders can use with confidence. While the guide is expected to be based on systems used for Uniform Commercial Code filings in the United States, the guides will recommend the adoption of completely electronic registration systems.
Representatives from 38 countries took part in the working group's initial meeting in Vienna. Numerous international organizations and non-government organizations including the World Bank, American Bar Association and CFA also participated in the meeting. CFA was represented by Co-General Counsel Richard Kohn of Goldberg Kohn. The working group will meet again in the spring in New York City.
CFA in the News
CFA's Public Relations program actively educates journalists about asset-based lending and factoring and their role in supporting U.S. businesses. Here are some highlights of the results of CFA's Public Relations efforts since the August edition of CFA Public Affairs Update.
A press release announcing the results of CFA's Asset Based Lending Index
for the 3rd Quarter of 2010 was issued on November 16th. To date, the press release has been picked up by 297 online and print media outlets, including Yahoo! Finance, the San Francisco Examiner, Benzinga.com, as well as local business and news publications in markets throughout the US and Canada. To see the release, click here
On November 5, Inc. Magazine
featured an article titled "How to Find Alternatives to Bank Financing" which profiled CFA member Capital Business Credit and offered the Commercial Finance Association as a resource for businesses in search of financing. To read the story, click here
On October 21, the Chicago Tribune
ran a story about former President George W. Bush's speech at the 66th CFA Annual Convention in Chicago. The article highlighted various points made by the former President and made reference to the CFA. To read the story, click here