Kamakura Reports U.S. Corporate Credit Quality Worsened Slightly in May. First Deterioration Since the First Quarter of 2003

HONOLULU, June 4, 2004: Kamakura Corporation reported today that corporate credit quality in May worsened slightly, with 11.9 percent of the U.S. public company universe classified as "troubled" by Kamakura. This is an increase of 0.8%, the first monthly increase since the troubled company ratio peaked at over 30% of the U.S. universe in the first quarter of 2003. Kamakura ranks all companies with default probabilities over one percent as troubled.

"It is too early to know if the steady improvement in credit quality has ended for this credit cycle, but the deterioration in credit quality last month was a significant change from the prior month," said Dr. Donald R. van Deventer, Kamakura Chairman and Chief Executive Officer. "The number of companies with default probabilities between 1 and 5 percent jumped from 5.7 percent of the universe to 6.4 percent of the universe, a level not seen since December, 2003."

Kamakura reported that 1.8 percent of the U.S. corporate universe had default probabilities of 5 to 10 percent in May, up slightly from April. The company said 1.2 percent of the U.S. corporate universe had default probabilities between 10 and 20 percent and 2.5 percent of the universe had default probabilities of more than 20 percent. These figures were roughly the same as the previous.

In May, Kamakura announced that it has added 32 million default probability correlations between all pairs of public companies in North America. These correlations are used by Kamakura clients to value first to default swaps, collateralized debt obligations, and fixed income portfolio credit risk. 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 also supplies its clients with the credit model performance tests required under the New Capital Accord from the Basel Committee on Banking Supervision ("Basel II").

Kamakura is offering free trials of its KRIS default probability service to qualified institutions. For more information on Kamakura's free trial offer please visit the KRIS information page found on the Kamakura Corporation web site. Additional information is available in Credit Risk Models and the Basel Accords (John Wiley & Sons, 2003) by Kamakura's van Deventer and Kenji Imai and available from Amazon.

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