U.S. Corporate Credit Quality Improves in December. Kamakura Reports Credit Risk Continues Downward Trend

HONOLULU, January 6, 2004: Kamakura Corporation reported today the number of troubled companies in the United States continued to decline in December. Kamakura rated 13.1% of public companies in the "high risk" category on January 2, down substantially from 14.4% reported 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 6.2% of the North American universe of public companies had an annual probability of default between 1% and 5% on January 2 compared to 6.8% in the previous month. Companies with default probabilities between 5% and 10% were 1.7% of the North American universe, and companies in the 10% to 20% range were another 1.5% of the universe. Both figures were slight improvements over the month-earlier figures. Kamakura's analysis showed that 3.7% of North American corporations were in the very high risk category, defined as companies with default probabilities between 20% and 100%. This is an 0.4% improvement over the month-earlier figure.

"The number of high risk companies in North America continued its decline this month, reflecting improving economic conditions and stronger balance sheets," commented Donald R. van Deventer, Kamakura Chairman and Chief Executive Officer. "The 13.1% of the universe we classify as 'high risk' is down from 32.0% in November 2002, a very substantial reduction in the number of companies at risk."

Kamakura's default probability estimates have proven highly accurate in forecasting defaults over the 1989-2003 period. The number of defaults predicted by Kamakura's default probability models over that time period was 97% of the defaults that actually occurred.

The Federal Deposit Insurance Corporation recently announced a new loss distribution model for the bank and savings and loan deposit insurance funds with Kamakura's Professor Robert Jarrow as lead author. This paper, which uses an approach similar to the Kamakura default probabilities for listed companies, is available for download from the research section (see working paper 107) of Kamakura's web site www.kamakuraco.com, along with detailed information on Kamakura's default probability service.

For more information on advanced hazard rate modeling and reduced form credit model research of Kamakura research director Professor Jarrow, see Credit Risk Models and the Basel Accords (John Wiley & Sons, 2003) by Kamakura's van Deventer and Kenji Imai and available for purchase from Amazon.

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