AFP Blogs

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after the date of enactment.*   In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. 

* This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

Chief financial officers and treasurers will convene in Washington in May to discuss how to operate in today’s financial environment.

The Association for Financial Professional’s Sixth Annual Global Corporate Treasurers Forum will take place at the Four Seasons Hotel, May 16-18, with Bank of America Merrill Lynch as the exclusive sponsor.

“AFP members have played a critical role in maintaining the financial stability of their organizations through the recession,” said Jim Kaitz, president and CEO of AFP. “Now they are moving forward based on new economic realities.”

Speakers include CFOs of McCormick and the Ratner Companies as well as treasurers of Yahoo! Inc. and Global Container Terminals.

“Bank of America Merrill Lynch is proud to sponsor this gathering of financial executives, which comes during a pivotal period for the treasury management industry,” said Dub Newman, Global Treasury Executive at Bank of America Merrill Lynch. “These discussions should prove invaluable to providing treasurers and executives with a deeper understanding of key issues and meaningful solutions to help businesses optimize their working capital.”

For more information on the Global Corporate Treasurers Forum, see www.afponline.org/gctf or download the event brochure.

Debt markets are not complicated. In fact, one expert says they are getting simpler with time.

“If anything, the debt world has been really dumbed down over the last decade,” says Andrew Kalotay, PhD, an authority on institutional debt management and fixed-income valuation. “There used to be more types of bonds issued and much of them on the corporate side have disappeared. Today, you would be hard pressed to find a single callable bond.”

Kalotay will lead “What Every Corporate Debt Manager Should Know,” a one-hour webinar for AFP members, April 15, 3:30 ET. Corporate treasury professionals can hear Dr. Kalotay discuss new issue structuring, debt retirement and hedging.

“Whether a swap or bond, think about the product as something to manage over time, cradle to grave, and contemplate contingencies,” says Kalotay. “Often corporates use them as a hedging transaction. They get a presentation that talks about locking in the interest rate but the transaction cost is not mentioned. The bid ask spread is narrow when you enter and quite wide when you get out.”

This week Federal Reserve Chairman Ben Bernanke signaled that the central bank would not change its key interest rate policy in the near term. Chairman Bernanke indicated that the current zero to 0.25 percent target range for the federal funds rate will remain in place for some time to come. He cited ongoing labor market problems and low inflation as reasons to maintain such a position despite continuing signs of broader economic improvements.

While Washington, D.C., and most of the northeastern United States tries to get back on its feet after suffering through what has been the snowiest winter since William McKinley was president, the rest of the world was focused on events in Europe (specifically Greece), and China.

Signs that the European Union (EU) will provide some sort of support and aid to Greece was enough to create a bit of a floor for the troubled sovereign credit and the Euro itself. After the freefall of credit spreads, CDS, equities, commodities and currencies over the past couple of weeks, this week actually seems calm.

We will have to take a wait-and-see approach to developments in Europe. How the EU would response to a further deterioration of the situation is foremost on people’s minds.

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Back in 2002, when the University of Maryland was making its run at the NCAA men’s basketball championship, the term “Fear the Turtle” became popular. It was a reference to the less-than-frightening school mascot, the Terrapin. This week, a significantly more frightening chant heard around the world, which was “Fear the PIGS”. With the “PIGS” being a reference to the countries of Portugal, Ireland and Italy, Greece and Spain.

We witnessed a great bit of uncertainty in the global markets as participants around the world were greatly concerned about the potential of a credit event in one or more of these European Community members. We watched as absolute credit spreads and credit default spreads continued to widen and as debt and equity deals were delayed and postponed.

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To paraphrase Frankie Valli and the Four Seasons, the word of the week is “Greece”. Concerns about the financial stability of the Greek economy were the focus of the global capital markets. Because Greece is a member of the European Community (EC), questions have been raised about the value of the currency, the riskiness of credit in Europe and the impact on the potential growth of the European economy.

Unlike 2009, when the general feeling was that all the economies were slowing down as a result of the financial crisis, 2010 is already shaping up as a year where individual countries’ economies will not be moving in such lockstep.

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As we continue to move forward in the new year, the floodgates of new corporate debt issuance continue to be wide open. After the traditional quiet time of year end, January debt issuance is usually a busy time. But this year looks to be busier than most. In fact, we may be experiencing the busiest January since the late 1990’s.

Why is this occurring? Often the factors that cause this to occur are due to alignment. Issuers have a lot of supply and investors have a lot of demand. But it goes much deeper than that.

After experiencing a once-in-generation credit event and concerns about the global economy heading towards a depression, we find ourselves in a much different place here in 2010.

After the central banks of the world provided massive amounts of liquidity to the world economy and drove interest rates down to levels not seen in 70+ years or more, we are faced with the questions of: How will all this liquidity be removed from the market? When rates start to rise, how high will they go? (more…)

The biggest mistake corporate treasury and finance professionals make when cash flow forecasting? “Not making clear the operating assumptions that drive the financial valuation, and then not monitoring the realization of benefits during the integration of the business over time,” says Henry Osti, managing director of Osti & Associates.

Osti, who will speak in AFP’s Advanced Approaches to Valuation Incorporating Unique Cash Flow Risks Webinar on Jan. 7, 3:30 pm ET, says valuating a business is especially difficult today. “The factors that drive the value of a business including cash flow, risk and financing, have all been tremendously impacted by the recent changes in the economy,” he says. “It is critical to understand how to model the impact of these factors in mergers, acquisitions and business valuation.”

Also speaking in the Webinar:

• Danny Huff, EVP & CFO, Georgia Pacific
• Fred Ryder, Senior Vice President, Corporate Strategy and Development,
  Blue Cross and Blue Shield of Florida
• Doug Cox, CFO, Arkema

The Webinar will cover:

• The techniques for valuing a business
• Benefits and disadvantages of valuation techniques
• How to rank order business value drivers
• How to apply risk-based techniques in valuing a business
• How to value business synergies in a fact-based manner
• Determination of specific factors that drive business value
• How to make projections for business value drivers in uncertain times
• Risk-based business valuation using Monte Carlo methods.
• A case study of Georgia Pacific’s acquisition analysis.

Global Capital Markets

JPMorgan sold $4 billion of 13-month extendible notes with a final maturity in December 2015

Travelers raised $500 million selling catastrophe bonds, the biggest issuance this year of securities that allow investors to bet against natural disasters.

U.S. Treasuries

Treasuries dropped, pushing 10-year yields to the highest level in four months.

The yield curve widened to a record as investors bet an accelerating recovery will fuel inflation and hurt demand for unprecedented government debt sales. (more…)