Global Credit Quality Declines Sharply Again in July

Troubled Company Index Jumps for 3rd Month to 7.1%

Kamakura Corporation announced today that its monthly global index of troubled companies increased sharply in July, the third consecutive decline in global corporate credit quality. The Kamakura troubled company index rose strongly in July to 7.1% of the global corporate universe, up from 6.4% in June. The index reached its 16-year low of 5.5% in April 2006 and its 16-year high of 28% was reached in September 2001, the worst part of the last recession. In percentile terms, July credit conditions were better than 82% of the monthly periods over the last 16 years, a decline from 91% last month. The troubled company index averaged 13.2% over the 1990-2006 period. Kamakura defines a troubled company as a company whose default probability is in excess of 1%. The index covers 16,000 public companies in 29 countries using the fourth generation version of Kamakura’s advanced credit models.

“The sharp declines in credit quality in June and July make it much more likely that the best part of this business cycle is behind us,” said Warren Sherman, Kamakura President and Chief Operating Officer. “The number of companies with default probabilities between 1% and 5% rose sharply in July to 5.2% of the global public company universe, up 0.5%. Companies with default probabilities between 5 and 10% rose 0.2% to 1.1% of the universe. Companies with default probabilities between 10% and 20% also rose 0.2% to 0.7% of the universe. The number of global companies with default probabilities over 20% declined by 0.1% to 0.2% of the universe.”

Beginning in January 2006, Kamakura has moved to a global index covering 29 countries using the annualized one month default probability produced by the best performing credit model of the Kamakura Risk Information Services default and correlation service. The model used is the fourth generation Jarrow-Chava reduced form default probability, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The countries currently covered by the index include Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, Luxemburg, Malaysia, Netherlands, New Zealand, Norway, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States.

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