Risk tips | The American home furnishing giant filed for bankruptcy, and dozens of Chinese enterprises were damaged

I. Basic information

        In 2022, factors such as widespread high inflation in overseas markets, rising interest rates, declining investment, and the Russia-Ukraine conflict will have a superimposed impact on global economic growth. Fujian Branch of China Export and Credit Insurance Corporation (hereinafter referred to as Fujian Branch of China Sinosure) received 1.6 times more cases of property destruction from buyers in that year than in 2021, with a loss reported of nearly $3 million, an 11 times year-on-year increase, with European buyers in the majority. At the beginning of 2023, the buyer’s bankruptcy risk continued to rise. Up to now, the number and amount of bankruptcy cases have far exceeded that of the whole year of 2022, and the bankruptcy risk of American buyers began to rise.

        Recently, China Export&Credit Insurance Corporation Fujian Branch has successively received a number of export enterprises reporting the default risk of NIELSEN BAINGREDGE LLC and its 13 affiliated companies (hereinafter referred to as NBG Group), the US home furnishing giant, with a reported loss of nearly US $5 million. According to the preliminary investigation of overseas channels of China Sinosure, NBG Group applied for Chapter 11 bankruptcy proceedings of the United States Bankruptcy Law on February 8, 2023. At present, the Group has opened the bankruptcy creditor’s rights registration channel（ https://cases.omniagentsolutions.com/claim?clientid=3652 ）The deadline for the registration of bankruptcy claims is March 8, 2023.

        According to the bankruptcy announcement of NBG Group, the assets of NBG Group are less than US $500 million, but the liabilities have reached more than US $500 million, and the number of creditors is expected to be more than 5000. The announcement also listed the top 30 creditors, involving 23 Chinese enterprises, with a total debt amount of more than US $50 million, including 6 export enterprises in Fujian Province, with a total debt amount of more than US $10 million, accounting for about 1/4, which may have a major impact on relevant industries.

II. Analysis of bankruptcy background

        As a household giant, entering the bankruptcy and reorganization process seems unexpected, but in fact it just reflects the current macroeconomic situation of the United States. According to China Sinosure’s “Brief Analysis of the Macro Development Environment in December 2022”, in December 2022, the PMI of ISM manufacturing in the United States fell by 0.6 percentage points to 48.4% month-on-month, which is the second consecutive month below the dividing line between prosperity and decline; Non-manufacturing PMI fell by 6.9 percentage points to 49.6% month-on-month, which was in the recession range, hitting a new low since May 2020.

        In addition, in 2022, the Russia-Ukraine conflict triggered a global energy crisis, and energy prices rose sharply, further pushing up domestic inflation in the United States. In order to alleviate the inflationary pressure, the Federal Reserve raised interest rates many times in 2022, which directly led to the housing market and other economic sectors showing signs of recession. According to China Sinosure’s Country Risk Early Warning Analysis (Issue 8), the data released by the U.S. Department of Commerce on January 26, 2023 showed that residential fixed assets investment plummeted 26.7%, the seventh consecutive quarterly decline. The housing market recession has a direct impact on the household market, and consumer spending is weak. It is understood that due to the combined impact of rising freight rates and price war in large home stores, many well-known American home manufacturers and retailers have successively applied for bankruptcy and reorganization since September 2022.

III. Relevant risk suggestions

        In response to the bankruptcy of NBG Group, the risk recommendations of China Sinosure Fujian Branch are as follows:

        1. It is recommended that relevant export enterprises register their claims as soon as possible,avoid missing the registration deadline (see above), and strive for the possibility of impairment; Enterprises that have taken out export credit insurance shall timely report losses and submit relevant loss reporting materials according to the policy agreement</ strong>

        2. At present, China Sinosure’s overseas channels have successfully obtained the seats of the group’s unsecured creditor committee.The insured enterprises can entrust overseas channels to register claims and recover losses as soon as possible, However, the agreement signed by both parties shall not violate the relevant provisions of the United States bankruptcy law. In order to ensure that the relevant agreement is protected by law, it is also recommended that the enterprise entrust the United States professional bankruptcy lawyer to participate in the signing. The insured enterprises can fully strive for legal interests by relying on the overseas channel advantages of China Sinosure.

        3. After consulting with overseas channels, the exported goods can be classified according to the following principles. According to the provisions of Clause B9, Article 503, Chapter 11 of the United States Bankruptcy Law, the goods received by the buyer within 20 days before bankruptcy will be paid in priority; For the goods not received by the buyer at the time of bankruptcy, the export enterprise can continue to control the order and determine the new payment method through negotiation with the bankruptcy administration committee; For licensed goods, they can apply to the bankruptcy administration committee for resale permission and then resell to new buyers.

        At present, although global inflation has begun to cool, it is still at a historical high. However, the tightening of the aggressive monetary policy adopted to curb high inflation, the deterioration of the financial situation, the decline of confidence and the general energy shortage led to the sharp reduction of the global economic growth expectations, and the economic development prospects of various countries (including developed countries such as Europe and the United States) still have great uncertainty. Export enterprises should not blindly trust “old buyers” and “big buyers”, make full use of export credit insurance as a policy financial tool, and do a good job of risk management in advance is still the top priority.

Article source：China Sinosure Fujian Branch