Troubled Company Index
Kamakura Troubled Company Index Increases 0.53% to 7.63% in April
NEW YORK, May 1, 2012: Kamakura Corporation reported Tuesday that the Kamakura index of troubled public companies declined, increasing .53% to 7.63% in April. The index has deteriorated in nine of the last twelve months. The index hit an intra-month high of 8.0% on April 10 while having an intra-month low of 7.2% on April 2. There was an increase in volatility in the index during April compared to the prior month with an upward bias throughout the month. At the 7.63% level, corporate credit quality is at the 69th percentile (with 100 being best all time credit quality) over the period from 1990 to the present. In December 2010, by contrast, the index was at the 99th percentile of credit quality and last month it was at the 78th percentile. Irish Life and Permanent had the world’s highest one-month default risk among rated companies, with a default probability of 25.21%. Tokyo Electric Power Co was ranked second with a default probability of 18.35%.
In April, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.13%, an increase of 44 basis points. The percentage of companies with default probabilities between 5% and 10% was 1.02%, an increase of 9 basis points. The percentage of the universe with default probabilities between 10% and 20% was 0.39% of the universe, an increase of 3 basis points, while the percentage of companies with default probabilities over 20% was 0.09% of the total universe in January, a decrease of 3 basis points.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Tuesday, “We saw an increase in volatility in the index with a bias towards higher default probabilities over the past month. Eight of the ten riskiest firms experienced increases in default probability over that time. Four of the riskiest firms were from United States, two were from Ireland, two were from Russia, and one each from Greece and Russia. While European names dominate the twenty riskiest firms in the index the jump in US firms in the top ten continues to demonstrate that credit stress is company specific and bears monitoring”.
The Kamakura troubled company index measures the percentage of almost 30,000 public firms in 37 countries that have annualized 1 month default risk over one percent. Kamakura’s index had reached a recent peak of 25.57% in November 2008. The average index value since January 1990 is 12.25%. Since November, 2010, the Kamakura index has used the annualized one month default probability produced by the KRIS version 5.0 Jarrow-Chava reduced form default probability model, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The version 5.0 model was estimated over the period from 1990 to 2008, so it includes the insights of the worst part of the recent credit crisis. The countries currently covered by the index include Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Luxemburg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Poland, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, United Kingdom, and the United States