eNews June 4

In the News

June 4, 2020


NACM's May CMI Shows Signs of Rebound

—Michael Miller, managing editor

After what can be considered the worst month in the history of NACM’s Credit Managers’ Index (CMI), several factors rebounded in May. The current index showed many gains, especially in the favorable factors, but NACM Economist Chris Kuehl, Ph.D., says don’t celebrate too early.

The combined index jumped to 44.1 in May after freefalling to 40.6 in April. All four favorable factors improved, but they all remain in contraction territory (under 50). The new credit applications category was the big mover in May, vaulting from 31.1 to 43.3, and sales increased more than eight points to 28.6. The unfavorables inched forward in May due to improvements in accounts placed for collection, dollar amount beyond terms and dollar amount of customer deductions. A key factor was bankruptcy filings, which slipped into contraction for the first time in several years, noted Kuehl. “This is a sign that already weak companies are succumbing to the lockdown recession.”

In the manufacturing sector, amount of credit extended was the only favorable factor to slip—roughly two points. New credit applications and dollar collections each jumped back into the 40s, but sales remained below 30. Four of the six unfavorables improved and stayed in expansion territory. Dollar amount beyond terms improved but is in the 30s. Bankruptcies fell into contraction territory, albeit at 49.3. The overall sector index improved to 44.1 from 42.

The service sector fared slightly better than manufacturing, also hitting 44.1. Sales was the lone favorable to not join the 40s, while new credit applications skyrocketed from 26.5 in April to 43.5 in May. Dollar collections improved as well, a good sign as far as recovery is concerned. “It would indicate that companies were both able to pay their creditors and were willing to do so. In the prior month, the desire to hoard cash was overwhelming the desire to stay current on their credit,” Kuehl said. The theme of bankruptcies continued in the service sector, falling deeper into contraction at 45.3 from 49.3. Rejections in credit applications also fell but stayed in expansion territory.

“After a crash of near epic proportions, there has been a significant rebound. But even with these better numbers, the economy is in trouble and credit managers should remain wary,” Kuehl said. “The willingness to take some risks will be present with manufacturers, but the service side will be treated with more caution and trepidation. The data this month would suggest that many are seeing a better future ahead.”


Online Courses

This course satisfies one of the two CBF designation course requirements. Visit the Credit Learning Center (CLC) or contact the NACM Education Dpt. at This email address is being protected from spambots. You need JavaScript enabled to view it. or 410-740-5560 to learn more.

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COVID-19 Impact on Suppliers

—Andrew Michaels, editorial associate


Even before the coronavirus reached the U.S., health care workers made their way to the frontlines to prepare for the inevitable impact the virus would have on the country. Employees of essential businesses, such as grocery stores, joined shortly thereafter as demand for personal protective equipment (PPE), cleaning products and other related goods skyrocketed. While many suppliers have struggled to keep up with demand, some have stayed on top of increased business, including credit professionals who are behind the scenes.

According to PYMNTS’ April B2B Payments COVID-19 Impact Report, 40% of retailers anticipate year-long inventory shortages because of the pandemic. In addition, a third of supply chain managers are experiencing transportation issues, “resulting in delayed shipments, unavailable products and unusual levels of business activity.”

“The COVID-19 pandemic has caused a surge in demand for medical supplies, such as hand sanitizers and face masks, straining the manufacturers and distributors that need to increase their operational capacities,” the report states. “Distributors are working to acquire larger quantities from manufacturers, but are still falling short of customers’ needs.”

From the credit perspective, businesses may have altered in the way of operations, but priorities remain the same. The report highlighted the experience of a cleaning supply distributor that also operated during the H1N1 outbreak in 2009 and the Zika outbreak in 2016. Just as they operated then, the distributor states that communication with customers holds the highest level of importance during the COVID-19 pandemic, especially as it relates to “purchasing operations and considerations.”

Brenntag Great Lakes, LLC (BGL) Credit Manager Joe Lange, CCE, CCRA, said 90% of office staff, e.g., the credit department, have worked remotely since mid-March. Meanwhile, key personnel—drivers, warehousemen, dispatch, production, quality control and compliance personnel—are still working at the office to ensure orders are shipped in a timely manner under federal law.

BGL sells chemicals used in waste water treatment, food production and production of cleaning chemicals, including some of the primary ingredients used in hand sanitizers and wipes. Therefore, Lange said, the Department of Homeland Security designated BGL as a critical infrastructure company.

“Business has increased roughly 15% during the crisis versus last year,” he said. “While we’ve seen a number of cancelled or pushed-back orders for companies which aren’t considered critical, the order pace and volume has drastically increased from our customers who manufacture critical products.

“After the crisis, I suspect sales will taper off a little as supply and demand shifts into post-crisis mode. I also anticipate that sales of chemicals used for critical products will remain higher than normal as current CDC and NIH modeling predicts COVID-19 may resurface during flu season this fall and into 2021.”


Online Courses

Get the Know How You Need to Break Through the Challenges of Global Credit

The completely revised and updated International Credit & Risk Management course features:

  • Practical, fresh content designed for global credit practitioners
  • Integrated discussions with other credit professionals worldwide
  • Online networking to facilitate learning and the exchange of ideas
  • integrated webcasts led by experts and practitioners
  • Regular comprehension checks
  • Instructor guidance and insight

After successful completion of the course and final exam, you will receive the FCIB’s Certified International Credit Professional (CICP) designation. Early rate good until April 10. For more information and to register, please visit FCIB.

After successful completion of the course and final exam, you will receive the FCIB’s Certified International Credit Professional (CICP) designation. For more information and to register, please visit FCIB.


How to Get Information from a Debtor in Bankruptcy

Michael Brandess, Esq.

A client’s or vendor’s bankruptcy filing prompts numerous important questions for the company’s trade creditors. Will I get paid for my outstanding receivable? Will the company liquidate or reorganize? Will the company be sold? Why did this happen? Fortunately, U.S. bankruptcy law requires that debtors make substantial public disclosures that provide guidance to their creditors. Some questions are easier to answer than others, and bankruptcy law provides the vehicles for creditors to stay well informed.

Court Filings

The first place to look for information concerning a debtor company’s bankruptcy filing is its court filings. In bankruptcy, a debtor is required to file comprehensive disclosures at several points during its case. In all cases, these filings can be downloaded from the bankruptcy court’s website for a nominal cost. In larger cases, debtor companies make the filings available on a separate website for no charge.

  • Petition: A debtor’s petition includes some basic information about the filing, including a rough estimate of the company’s assets and liabilities. It is often accompanied by a list of the company’s 20-largest-unsecured claims. Creditors holding those claims are often solicited to sit on an official committee of unsecured creditors.
  • First-Day Filings: Because a debtor company in a Chapter 11 bankruptcy requires certain relief to continue their operations (such as the ability to use cash or pay employees), requests are often made on the first few days of the case for the ability to continue conducting business. Those motions often include a narrative accompanying the requests which provide parties with some sense of the company’s operational or financial issues. In larger cases, debtors file declarations or affidavits from a C-level executive summarizing the first-day requests and outlining the goals to be accomplished through bankruptcy.
  • Schedules and Statement of Financial Affairs (“SOFA”): A debtor’s schedules and SOFA are filed within the first few weeks of a bankruptcy case. The schedules list all the company’s assets and liabilities by category. The SOFA provides a comprehensive overview of the company’s financial transactions during the months and years prior to the bankruptcy filing.
  • Plan and Disclosure Statement: The plan and disclosure statement set forth the debtor’s strategy to emerge from bankruptcy. The plan binds all parties in interest to a distribution scheme and, therefore, requires comprehensive disclosures.
  • Other Filings: Debtors often file additional substantive requests during their cases, such as sale or financing motions. These motions generally include narratives that apprise parties of the state of business and the necessity of the filing. Conversely, other parties, might file substantive objections to the debtor’s requests. Those objections provide alternative viewpoints and are often supported by facts that the debtor might otherwise wish to minimize.

Creditors’ Meeting

In addition to a debtor’s public filings, a representative of the company is required to sit and answer questions at a meeting of creditors within 20 to 40 days of a bankruptcy filing. Creditors and the U.S. Trustee are entitled to ask questions of the debtor that might not have been answered in its public filings. Creditors’ meetings provide an ample opportunity for parties to obtain a more fulsome understanding of the debtor’s situation and strategy. However, there are limits to the questions that may be asked.

2004 Examination

For inquiries that go beyond that obtainable during a creditors’ meeting, the Bankruptcy Code provides a vehicle for creditors to obtain additional information from a debtor company that might not have already been disclosed. This filing is referred to as a 2004 examination, referring to the relevant section of the Bankruptcy Rules. Creditors can file motions seeking broad areas for examination through 2004 motions. Those requests are deemed routine and are typically granted by the court. Moreover, the breadth of inquiry is often referred to as a “fishing expedition” given that creditors can make broad informational requests.

Pick up the Phone

In lieu of spending considerable time or money retaining an attorney, attending a creditors’ meeting or filing a motion, a creditor can always pick up the phone to call the debtor, the U.S. Trustee, the creditors’ committee or any of their professionals. Creditors’ committee attorneys can be particularly helpful informational resources given that creditors’ committees owe fiduciary duties to the unsecured creditor body.


Michael Brandess, Esq., is a partner at Sugar Felsenthal Grais & Helsinger LLP in Chicago. He represents both healthy and distressed companies, and their principals, as they endeavor to conquer new goals and address material challenges. Michael has taken clients through complex sales, acquisitions, restructurings and liquidations across the country.







Do Not Sign That Lien Waiver

 - Christopher Moore Sweeney, Esq.

Every month, contractors, subcontractors and suppliers submit applications for payment upstream along with a form they are contractually required to execute: a release and waiver of claims or liens, commonly called a “lien waiver.” The language in these lien waivers is intended to identify how much the contractor has been paid and release any claims, liens or demands that the contractor may have against the upstream entities, including the project owner, the property and any applicable bonds. However, the language is often very broad and is a common area where lower-tier contractors can lose or substantially limit their rights for claims that are not yet fully known, such as the impacts from the novel coronavirus (COVID-19) pandemic.

This article identifies some of the issues contractors, subcontractors and suppliers should be looking for in these lien waivers and ways they can protect themselves from losing their rights.

Carefully read every lien waiver. Reading and understanding each and every lien waiver is good advice regardless of a pandemic. However, it is absolutely critical now. The language in lien waivers usually varies from project to project and owner to owner, so you cannot assume that the language you have used on the last five projects will be the same as the current one. Also, though typically referred to as lien waivers, these documents almost always release and waive ALL claims against ALL potential parties for additional compensation or additional contract time. This means your lien waiver is not simply giving up your mechanic’s lien rights, but also your right to submit a change order request, request for equitable adjustment or file a claim on applicable payment bonds. Knowing exactly what is waived and released is essential.

Reserve your rights. Some lien waivers provide space to identify open change orders and/or claims that are not being waived or released. In these instances, contractors should identify COVID-19-related impacts as an open claim to be resolved later. Even when that option is not provided, contractors should append language to the lien waiver excluding COVID-19-related cost and time impacts. What the reservation language should say may vary by the language in the lien waiver. Owners and other upstream entities may push back on such reservation language, but usually the parties are able to work out agreeable language.

Quantify and submit claims for what you can. In jurisdictions where construction has been entirely shutdown by government or health official orders, the impacts of COVID-19 are apparent. However, in other jurisdictions where construction is continuing without too many restrictions, the impacts may be more subtle or difficult to identify at this time. Nonetheless, contractors should attempt to identify cost or time impacts that they can and seek changes or submit claims as appropriate. But, submitting the change order request or claim is not always enough. Lien waivers may still release and waive unsettled change orders or claims if they are not expressly identified and excluded. Even after submitting change order requests, requests for equitable adjustment or claims, contractors must continue to include these items as open and reserved items on lien waivers for every interim payment until they are addressed and closed.

Document, document, document. Clear and detailed documentation of potential impacts is critical. Upstream entities, and in particular project owners, may push back on broad reservations in lien waivers. Regular, detailed project documentation showing potential impacts from COVID-19 (i.e., sick employees, inefficiencies due to social distancing or other CDC-recommended changes, or delayed material or equipment shipments) can help justify the need for such reservations by showing actual changes to the project that may not yet be quantifiable. Additionally, this documentation will be necessary later to support change order requests or other claims. Months or years from now when impacts from this pandemic are being arbitrated or litigated, this documentation will be the difference between a potentially successful claim and unrecoverable costs.


Christopher Moore Sweeney, Esq., focuses his practice on construction law, with a focus on litigation and alternative dispute resolution. Whenever possible, Chris also brings his experience to aid clients in avoiding disputes by providing pre-project advice and contract drafting, counseling and claims preparation during projects, and guidance for close-out or claim negotiations when disputes arise.



Construction Credit is Complicated

What's required to maintain and enforce lien and bond rights is complicated, especially when selling in multiple states. Some vendors give away basic lien and bond information for free. That can be helpful, but be warned that there are no shortcuts to fully understanding the complexities of a state's lien and bond statutes.

The STS Lien Navigator digs deeper to provide the answers that will help guide you through the entire process. It's that depth and attention to detail you may not know about that makes the difference. The STS answer line is also available with your Navigator subscription.

For the easiest, most cost-effective professional answer to your construction credit questions, get the help you need with the Lien Navigator.

For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.

For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.