Kamakura Corporation announced today that its monthly global index of troubled companies improved significantly again in February to 5.8% of the global public company universe, compared to index values of 6.1% in January and 7.3% in December. The index has only been lower during the March-May 2006 period, when it reached the 5.4% low point for the last 17 years. February global credit quality was better than 98.6% of the monthly periods since January 1990, up from a 98.1% rank in January. The average value of the index has been 13.7% over the last 17 years. Kamakura defines a troubled company as a company whose default probability is in excess of 1%. The index covers more than 17,000 public companies in 29 countries using the fourth generation version of Kamakura's advanced credit models. The 16-year high in the index was 28%, reached in September 2001, the worst part of the last recession.
"The continued improvement in credit quality in February may be short-lived, as it doesnât yet fully reflect the recent 400 point drop in the Dow Jones index nor the melt-down in the sub prime mortgage lending market in the last two business days," said Warren Sherman, Kamakura President and Chief Operating Officer. "The number of companies with default probabilities between 1% and 5% was 4.3% of the global public company universe in February, down from 4.4% in January. Companies with default probabilities between 5 and 10% were down by 0.2% to 0.7% of the universe. The percentage of companies with default probabilities between 10% and 20% was unchanged in February at 0.5% of the universe. The number of global companies with default probabilities over 20% was also unchanged, totaling 0.3% of the universe at the end of February."
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.