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How 10 Philly firms are bracing for U.S. downgrade

What they and customers are doing, if anything, to face a downgraded, defaulted US

    by Joseph N. DiStefano
    Published 
Ten Philly business owners tell what they and customers are saying and doing - stuffing extra cash into a "war chest," dumping bonds, looking for ways to exploit a weaker dollar, and sometimes "nothing" - to meet the threat of a default or downgrade, in a United States that can't agree how to pay its bills.
1) US vs UK: “We haven’t seen anything to indicate that our customers in the U.S. are expressing any concern or altering their buying patterns,” said Joseph Weiss, chairman of Electronic Ink, a Center City-based digital design firm. “I am more concerned about the U.K. I understand it is all over the news there and people are wondering how the U.S. government can be so dysfunctional.”
2) FROM FRANCE: “It's pathetic that the politicians on both sides have let it come to this,” said J. Scott Victor, investment banker at distressed-companies specialist SSG, of West Conshohocken, from his summer lair in Provence. Asked if the French were maybe enjoying America’s discomfort, he wrote back, “Oui.”
3) DISTRIBUTION: In case of a default, "Interest rates would be much higher very quickly, meaning the cost of borrowing would go up, and cash position will be critical.  We have a war chest ready to go for this.  We will finance growth through cash. Those companies who rely on debt will have difficulty."  Richard G. Phillips, ceo, Pilot Air Freight, Media. (Phillips organized a group of CEOs to press PA's Congressmen to settle this quick even if it means "closing tax loopholes.")
4) START-UPS: “My businesses are not doing anything different. However, if the credit downgrade puts our economy into more recession, free or near-free online services would get even more popular,” while “cost differentiation” could make U.S. services more attractive to foreign buyers, suggests Gigi J. Kizhakkechethipuzha, a King of Prussia-based software engineer whose businesses include Talentoid Talent Acquisition Services and FreeCourtDockets.com.
5) COMMERCIAL REAL ESTATE: “We're slightly worried about (interest) rates increasing suddenly, but even if they don't reach a deal, we think there's so much money chasing good commercial deals right now, that rates will stay low,” predicted Tony Hayden Jr., principal at MIM-Hayden Management Co., a suburban office landlord and investment manager.
6) SOFTWARE: “It's business as usual for me on a personal and business level,” said Chris Cera, co-founder of Vuzit, a Center City business software firm. But “I'm very concerned about the US economy. The Fed prints money and has endless mandates that stifle state (and) local governments who actually have to balance their budgets," sometimes at vendors' expense.
7) ONLINE SEARCH: “We aren’t doing anything different in regard to the debt mess. Just moving ahead without worrying about it for now,” says Philadelphia expatriate Evan Britton, chief executive of Los Angeles-based Web analytics firm ResourceWebs.
8) ENERGY: The slowdown has had “no” impact on sales, says Bob Fiori, chief executive of Green Power Technologies LLC, a King of Prussia-based seller of BERT-brand electric power controls and outlets. He’s still out hustling to sell.
9) RETAIL: “I follow the grocery business fairly closely and haven’t seen or heard anything to indicate they are doing anything differently,” says David Goodman, of Equity Retail Brokers, a Conshohocken property sales firm that tracks growth and decline at Shop-Rite, Acme and other supermarket chains.
10) MONEY MANAGEMENT: "To the extent that the rating agencies downgrade the Treasuries, funding new debt would probably be more expensive as rates for the lower quality issues rise," says Howard Trauger, owner of Schuylkill Capital Management, Center City. "You know: Quality down, rates up, prices down.

"Last Friday, I sold all my clients' IEI shares -- that's 3-7 Year Treasurys --  to take the gains built up over time in this anemic Money Market Yield period. I had been using this (stock) as substitute for money market funds. 

"Lower bond prices, together with lower equities prices in a very unsettled environment will reduce our billings, and our compensation. 

"Naturally, the manufacturing sector will suffer other consequences. I don't think that the debt ceiling conflagration will have any significant short-term operating impact on supply-chain management...
"By January,  I think we'll look back on this as an excellent buying opportunity."
    JN
    Joseph N. DiStefano