By and  on December 1, 2009

WASHINGTON — The U.S. textile industry is struggling with a new credit crisis that is undermining billions of dollars in exports to the Western Hemisphere, its top market.

The industry has faced a long-term credit crisis for more than a decade, but the situation has worsened with the economic downturn and bank failures and bailouts in the U.S.

The volume of U.S. textile exports to the region — most to Mexico and Central America — has declined 24 percent since last year because it is harder than ever to obtain financing credit and guarantees, industry representatives said.

The National Council of Textile Organizations and several of its member textile firms in the Carolinas, including Mount Vernon Mills, Parkdale Mills and Tuscarora Yarns, along with the National Cotton Council of America are lobbying to secure more financing and seeking help from Congress.

Cass Johnson, president of NCTO, said in recent testimony before a House committee that U.S. government institutions, banks and insurers have withdrawn credit from the $25 billion Western Hemisphere textile and apparel trade sector. More U.S. lenders are refusing to accept foreign accounts receivable as collateral, Johnson told lawmakers.

In addition, U.S. apparel manufacturers and other textile mill customers have started asking mills to extend longer credit terms, sometimes as much as 150 days, and to do so without U.S. Export-Import Bank insurance coverage, factoring, or private credit coverage.

“One can easily understand that smaller and midsize mills have been driven to the brink of failure,” Johnson said.

NCTO is recommending that the House Small Business Committee change a Small Business Administration loan program that provides export financing to small businesses to make the initiative more readily available to small and medium-size manufacturers.

The House passed a bill in October increasing the size of the SBA loans to $5 million, considered a good first step by the textile industry, but the bill has stalled in the Senate, which is bogged down in negotiations over health care legislation.

The issue has gotten the attention of Obama administration trade officials with jurisdiction over some aspects of textile and apparel trade issues. Gail Strickler, assistant U.S. Trade Representative for the office of textiles, has been helping to lead the effort.

“We are working with the Ex-Im Bank [Export Import Bank of the U.S.] to explore financing options for DR-CAFTA countries and Haiti, to enable the full package sourcing brands and retailers require,” a USTR spokeswoman said. “Both agencies want to help U.S. textile and yarn manufactures.”



Kim Glas, deputy assistant secretary for textiles and apparel at the Commerce Department, said, “I’ve heard from the many industry folks that during this economic downturn they’ve had significant problems finding financing. I know [Commerce] Secretary [Gary] Locke has made it a priority to figure out how to help small and medium-size manufacturers find the financing they need for long-term viability.”

Brad Chastain, corporate credit manager at Mount Vernon Mills, a key producer of denim apparel fabrics and pocketing materials, said the company’s exports to Central America have dropped because of the credit squeeze, an overall decline in business and an unstable retail environment. Chastain said the primary problem is with his foreign customers that can’t get financing from their banks. Those institutions are unable to securing funds from U.S. banks.

“What we have to do is make the sale to the offshore company and the credit risk is a big part of the problem,” Chastain said. “We’re oftentimes dealing with companies that are undercapitalized or don’t have a lot of financial wherewithal.…They have difficulty getting working capital in place to buy our fabrics and make garments and sell back to U.S. apparel companies.”

Mount Vernon has an insurance policy with the Export-Import Bank of the U.S., but it does not cover certain countries, it has a deductible and it only extends to90 percent of losses. Chastain said there are significant risks for U.S. mills to open credit terms and “go out on a limb and make large sales to Central American companies because there is a lot of default history there.”

He said they are not willing to take the credit risk if they can’t get Export-Import bank insurance.

Werner Bieri, president and chief executive officer of Buhler Quality Yarns Corp., which produces supima cotton yarn and exports 35 to 40 percent of sales to Honduras, El Salvador and Guatemala, said, “banks have gotten a lot more leery to lend to the industry,” adding the biggest impact has been on his accounts receivables financing, which has increased roughly 50 percent.

“That means we need higher credit lines to do business and we have asked for an increase of credit lines but they have denied us,” Bieri said.

The credit lines for Buhler’s customers in Central America have been cut, in addition to U.S. retailers paying slower, leading to losses for his company.

Credit problems are plaguing the entire supply chain from cotton producers to retailers.

“From a common sense standpoint, we’re interested in spinners having a strong export market so there is a stronger demand for cotton,” said John Maguire, Washington representative for the National Cotton Council. “If we don’t have spinners to sell to in the long term, we’ll have serious problems so we are in a supportive role.”

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