Kamakura Credit Index Shows Further Decline in Global Credit Quality in June

1 July 2008

Kamakura Corporation reported Tuesday that its monthly index of troubled public companies showed deteriorating global credit conditions in June. The index, which showed rare improvement in May, has now deteriorated in 10 of the previous 11 months. Kamakura reported that troubled companies in June make up 13.2% of the global public company universe, up from 12.7% in May. The index has been moving within the 12.7 to 13.7% range for the last four months. At the current 13.2% level, the index shows that credit conditions are better than 44.3% of the monthly periods since the start of the index in January, 1990. Kamakura defines a troubled company as a company whose default probability is in excess of 1%. The index covers more than 20,000 public companies in 30 countries using the fourth generation version of Kamakura's advanced credit models.

"Credit quality has now moved in a narrow band for the last four months with a high degree of volatility," said Warren Sherman, Kamakura President and Chief Operating Officer. "Among the rated companies showing the highest jump in one month default probabilities in June were PMI Group, Bank of Ireland, and Washington Mutual. In June, the percentage of the global corporate universe with default probabilities between 1% and 5% increased 0.5% to 9.3%. The percentage of companies with default probabilities between 5% and 10% was down 0.1% to 1.9% of the universe in June. The percentage of the universe with default probabilities between 10 and 20% was up 0.2% to 1.2% of the universe. The percentage of companies with default probabilities over 20% remained at 0.9% of the total universe in June."

Beginning in January 2006, Kamakura moved to a global index covering 30 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, Mexico, the Netherlands, New Zealand, Norway, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States.

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