U.S. Corporate Credit Quality-Is the Peak in the Credit Cycle at Hand? Kamakura Reports End in 18-month Improvement in Credit Quality

HONOLULU, April 7, 2004: Kamakura Corporation reported today the number of troubled companies in the United States remained unchanged in March for the second month in a row, after an 18-month trend of improving credit quality. Kamakura continued to rate 11.5% of public companies in the "high risk" category at the end of March, unchanged from a month earlier. Kamakura defines a company as "high risk" if its default probability over the next year is more than one percent.

Kamakura's analysis showed that 5.7% of the North American universe of public companies had an annual probability of default between 1% and 5% at the end of March. Companies with default probabilities between 5% and 10% were 1.5% of the North American universe, and companies in the 10% to 20% range were another 1.4% of the universe, both essentially unchanged from the prior month. Kamakura's analysis showed that 2.9% of North American corporations were in the very high risk category, defined as companies with default probabilities between 20% and 100%.

"The pause in credit quality improvement that we noted last month continues," said Dr. Donald R. van Deventer, Kamakura Chairman and Chief Executive Officer. "Longer term default probabilities for many companies are beginning to rise in anticipation of a cooling economy after 18 months of recovery. We continue to advise our clients that coming months will merit an increasingly cautious stance with regard to extensions of credit."

Kamakura's default probability estimates have proven highly accurate in forecasting defaults over the 1989-2004 period through every stage of the credit cycle. The correlation of default probabilities between companies both within the same industry and in different industries can be very high due to the common macro-economic factors which drive credit risk. Kamakura's results are consistent in this regard with Bank for International Settlements working paper 126 by Linda Allen and Tony Saunders and with the requirement of the New Capital Accord from the Basel Committee on Banking Supervision ("Basel II").

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