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Kathren Bade
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Kamakura Reports Stable Corporate Credit Quality in December

Kamakura Troubled Company Index Increases 0.01% to 6.07%

Kamakura Corporation reported Thursday that the Kamakura troubled company index ended the month of December at 6.07%, an increase of 0.01% from beginning of the month. The index reflects the percentage of the Kamakura 35,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects declining credit quality.

As of the end of December, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.13%, down 0.14% from November. The percentage of the universe with default probabilities between 5% and 10% was 0.62%, unchanged from last month while the percentage between 10% and 20% was 0.24%, down 0.01%. The percentage of companies with default probabilities over 20% was 0.10%, unchanged. The index hit an intra-month high of 6.18% on December 20th, while the intra-month low of 5.8% was on December 18th. The magnitude of change in the index during the month was 38 basis points representing the second consecutive month with a very narrow band of movement.

At 6.07%, the troubled company index is at the 91st percentile of historical credit quality (with 100 being best all time) over the period from January 1990 to the present. The multinational Spanish gaming company, Codere SA once again had the world’s highest one-month default risk among rated companies at 7.62% and increase of 0.74 from last month. Among the ten riskiest firms in November, five were European firms, two each from China and the United States and one from Argentina.

Martin Zorn, President and COO for Kamakura Corporation, said Thursday, “Overall credit conditions remain stable and generally very good. The recent themes within the troubled company index remain generally the same with pressure in European names along with increasing pressure on Chinese banks. It is easy to become complacent at this point in the cycle. Surveys show continued easing in underwriting standards while our troubled company index demonstrates that risks remain on a company and sector basis.”

The Kamakura troubled company index measures the percentage of more than 35,000 public firms in 56 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 11.80%. 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, and includes the insights of the worst part of the recent credit crisis. The countries currently covered by the index are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, Chile, China, Colombia, Cyprus, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam.