Kamakura Reports December Global Credit Quality Falls for the 16th Time in 17 Months

6 January 2009

Kamakura Corporation announced Tuesday that the Kamakura index of troubled public companies showed strongly deteriorating global credit quality in December, the 16th decline in credit quality in the last 17 months. The Kamakura global index of troubled companies increased to 24.0% of the public company universe from 22.6% of the universe in November. Kamakura defines a troubled company as a company whose short term default probability is in excess of 1%. The all-time high in the index was 28%, recorded in September 2001. Kamakura Corporation labeled the current economic contraction a recession in an April 1, 2008 press release, a full 8 months prior to the National Bureau of Economic Research, which took similar action on December 1. The Kamakura definition of recession is an economy where the troubled company index shows a higher degree of corporate distress than the 13.5% average for the Kamakura index since January 1990.

At the current 24.0% level, the index shows that credit conditions are better than only 4.0% of the monthly periods since the start of the index in January, 1990. The all-time low in the index was 5.4%, recorded in April and May, 2006. The index covers more than 21,000 public companies in 30 countries using the fourth generation version of Kamakura's advanced credit models. The data behind the Kamakura credit models was recently featured in the December Journal of Finance in an article “In Search of Distress Risk” by John Y. Campbell, Kamakura senior research fellow Jens Hilscher, and Jan Szilagyi.

"On September 3, Kamakura reported that Chesapeake Corporation and Tronox were among the rated companies with the largest one month jumps in short term default risk,” said Warren Sherman, Kamakura President and Chief Operating Officer. "Chesapeake Corporation filed for bankruptcy December 30 and Tronox’s credit rating was dropped to D earlier this month. On November 3, Anglo Irish Bank and Bank of Ireland were named by Kamakura as showing the sharpest rises in default probabilities among rated companies. Both were rescued by the Irish government on December 22. This month, among rated public companies, the companies showing the sharpest rise in short term default risk were U.S. Shipping Partners LP, Rotech Healthcare, and YRC Worldwide. In December, the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by 0.1% to 13.2%. The percentage of companies with default probabilities between 5% and 10% was up 0.2% to 4.4% of the universe in December. The percentage of the universe with default probabilities between 10 and 20% rose 0.3% to 3.1% of the universe. The percentage of companies with default probabilities over 20% was up a very sharp 1.0% to 3.3% of the total universe in December."

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