Kamakura Reports 18% Rise in Global Troubled Companies in First Half of August

HONOLULU - 20 August 2007

Kamakura Corporation has released its first-ever mid-month global credit quality report today in response to the unprecedented conditions in global credit markets. Since the end of July, though August 16, Kamakura reported an 18% increase in the number of troubled companies globally. As a percentage of the global corporate universe, the Kamakura global index of troubled companies rose to 7.4%, an increase of 0.9% from July. This is the first time that the troubled company index has varied outside of the range from 5.4% and 7.3% since November 2005. The rise in the number of troubled companies, while large, is nowhere near the largest historical change in the index. The index has changed by more than the interim 0.9% 20.7% of the time since origination of the index in 1990. The 17 year low point for the Kamakura troubled company index was 5.4% in March-May 2006. The 17-year high in the index was 28%, reached in September 2001, the worst part of the last recession. Mid-August 2007 global credit quality was still better than 81.9% of the monthly periods since January 1990, down sharply from a 95.2% rank in June. The average value of the index has been 13.5% over the last 17 years. Kamakura defines a troubled company as a company whose default probability is in excess of 1%. The index now covers more than 20,000 public companies in 29 countries using the fourth generation version of Kamakura's advanced credit models.

"The Kamakura troubled company index and Kamakura’s related company-by-company default probabilities give market participants an ability to distinguish clearly between pure default risk and credit spreads, which reflect market risk aversion in general and macro-economic conditions," said Warren Sherman, Kamakura President and Chief Operating Officer. "The sharp increase in credit spreads over the last two weeks of course reflects an increase in housing-related default probabilities, but the wide-spread nature of the movement in spreads also reflects a sharp increase in the market’s aversion to risk. Short term credit risk, which is what the troubled company index measures, has risen in the lower default probability ranges, but so far there has not been dramatic movement at the highest risk levels from a default probability perspective.

The percentage of the global corporate universe with default probabilities between 1% and 5% increased sharply from 4.7% of the universe at the end of July to 5.5% of the universe on August 16. The percentage of companies with default probabilities between 5% and 10% was up by 0.1% to 1.0% of the universe on August 16. The percentage of the universe with default probabilities between 10 and 20% was unchanged at 0.6% of the universe. The percentage of companies with default probabilities over 20% increased by 0.1% to 0.4% of the total universe as of August 16. The index has not been higher than 7.4% for a full quarter since the second quarter of 2005."

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, the Netherlands, New Zealand, Norway, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States.

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