PPAI, Trade Organizations Call For Federal Support In Credit Crisis

PPAI has joined with numerous trade associations, organizations and other groups, representing a broad cross section of U.S. industries, in a letter to Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross and Federal Reserve Chair Jerome Powell, calling on them to establish an emergency, temporary federal commercial trade credit insurance backstop to thwart an emerging credit crisis to enable and sustain a safe restart of the economy.

Commercial trade credit insurance protects sellers of goods and services against losses from customers unable to pay due to insolvency or other reasons, and it makes it possible for sellers to use their accounts receivable as collateral to borrow working capital from banks. Normally, suppliers can purchase commercial trade credit insurance up to a pre-determined amount, based on the financial strength of a given buyer. In times of economic stress, however, credit insurers are forced to dramatically scale back the credit limits they can offer to preserve their own balance sheets. As this is now happening, the signatories of the letter are asking for the federal government to step in.

“Many retailers and vendors are now overextended as a result of the unprecedented shutdowns and interruption we have experienced over the past three months,” the letter reads. “This means that U.S. jobs, including many U.S. manufacturing jobs, supported by our supply chains are at risk. The available credit insurance capacity now represents only a fraction of what was available just a few months ago, and the situation continues to deteriorate. The short-term implications of this acute problem are devastating, particularly for the many U.S. companies that will be forced to absorb nearly all the risk of new business or walk away from those business opportunities simply because a transaction that was routine in January is now considered too risky.”

It goes on to state, “The spring and early summer are critically important for our supply chains in anticipation of the upcoming holiday season. Ordering for the fall is already starting to begin. As you know, for many retailers and their supply chains, the holiday sales season is the most important portion of the year, and a failure to fully restore credit to the supply chain now could extend the severe economic drag from the last few weeks of shutdowns well into the next year, harming millions of Americans who depend on these supply chains for their livelihood.”

Germany, France, the UK, Canada and other countries have taken steps to support the trade credit insurance market. The letter asks that the U.S. pursue a similar initiative as an emergency, temporary federal reinsurance backstop would help restore the missing capacity in the commercial credit insurance market so that new orders can be placed and new business can be conducted.

filed under June 2020
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