Kamakura Corporation reported that the Kamakura index of troubled public companies increased 60 basis points in July to 6.83%. The index set an all-time low of 4.36% on December 17, 2010. The index ranged from a low of 5.66% on July 7 to a high of 6.83% at month-end. While the default index remains in the least risky quintile on a historical basis, the upward trend over the past three months bears continued scrutiny and vigilance. Tokyo Electric Power Company continues to be the firm with the worldâs highest one-month default risk among rated companies.
The Kamakura troubled company index measures the percentage of 29,400 public firms in 37 countries that have annualized 1 month default risk over one percent. Beginning with the November 2010 index value, the Kamakura troubled company index is now based on the version 5.0 default models from Kamakura Risk Information Services. Previously, the index was reported using the KRIS version 4.1 models. The version 5 models were estimated over the period from January 1990 to December 2008 and therefore capture the key events of the credit crisis in the fall of 2008.
Kamakuraâs index had reached a recent peak of 25.57% in November 2008. Credit conditions at the end of July were better than credit conditions in 82.26% of the months since the indexâs initiation in January 1990.
The average index value since January 1990 is 12.45%.
The all-time high in the index was 27.41%, recorded on October 31, 2001. To follow the troubled company index and other risk commentary by Kamakura on a daily basis.
In July, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.28%, an increase of 27 basis points. The percentage of companies with default probabilities between 5% and 10% was 1.01%, an increase of 16 basis points. The percentage of the universe with default probabilities between 10 and 20% was 0.40% of the universe, an increase of 10 basis points, while the percentage of companies with default probabilities over 20% was 0.14% of the total universe in July, an increase of 7 basis points.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Wednesday, âAmong the 2,031 firms in the KRIS corporate universe with legacy ratings, there was a dramatic increase in the number of firms that showed increases in 1 month annualized default risk. During the month of July more than 40 firms showed an increase of more than 100 basis points. In the Eurozone the financial firms made up a large proportion of this group reflecting their holdings of sovereign debt. In North America the names continued to be firm specific with a concentration of transportation related firms in the top tenâ.
Beginning in November, 2010, the Kamakura index uses the annualized one month default probability produced by the KRIS version 5.0 Jarrow-Chava reduced form default probability model, 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, China, Denmark, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Luxemburg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Poland, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, United Kingdom, and the United States.