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Kamakura Reports Weakening of Corporate Credit Quality in September 2014

Kamakura Troubled Company Index Increases 0.30% to 4.66% from August 31 

Kamakura Corporation reported Tuesday that the Kamakura troubled company index ended the month of September at 4.66%, an increase of 0.30% from August 31st. The index reflects the percentage of the Kamakura 34,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality. The index is now 0.71% above its all-time “best” level of 3.95%, recorded on August 4, 2014.

As of the end of September, the percentage of the global corporate universe with default probabilities between 1% and 5% was 3.77%, up 0.22% from August; the percentage of the universe with default probabilities between 5% and 10% was 0.58%, up 0.04%; the percentage between 10% and 20% was 0.23%, up 0.04%; while the percentage of companies with default probabilities over 20% was 0.08%, which was unchanged from the previous month.

At 4.66%, the troubled company index is at the 98th percentile of historical credit quality (with 100 being best all time) over the period from January 1990 to the present. Among the ten riskiest firms in September, four were from the United States, two from Russia, two from Brazil, and one each from Canada and Greece. The riskiest company on the list last month, NII Holdings (NIHD), filed for Chapter 11 bankruptcy on September 15. RadioShack (RSH) is the riskiest rated company in the world this month. Other U.S. firms on the list include Quicksilver Resources (KWK), Quiksilver Inc. (ZQK), and Molycorp (MCP). 

Martin Zorn, President and COO for Kamakura Corporation, said Thursday “Although the troubled company index remains at historically low levels, retailing, mining and natural resource companies continue to be weak and vulnerable. The term structure of default probabilities shows a deteriorating outlook. At 5 years, the percentage of troubled companies increases to 11.56%, and at 10 years the percentage of troubled companies is 17.30%.” 

The Kamakura troubled company index measures the percentage of more than 34,000 public firms in 61 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 11.66%. 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 62 countries currently covered by the index are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, Chile, China, Colombia, Cyprus, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam.