Kamakura Reports Slight Decline in Corporate Credit Quality in March

New York - 3 April 2012

Kamakura Troubled Company Index Increases 0.08% to 7.10% in March

Kamakura Corporation reported Monday that the Kamakura index of troubled public companies declined slightly, increasing .08% to 7.10% in March. The index has deteriorated in eight of the last eleven months. The index hit an intra-month high of 7.54% on March 6 while having an intra-month low of 6.78 on March 13. There was an increase in volatility in the index during March compared to the prior month. At the 7.10% level, corporate credit quality is at the 78th percentile (with 100 being best all time credit quality) over the period from 1990 to the present. In December 2010, by contrast, the index was at the 99th percentile of credit quality and last month it was at the 79th percentile. Tokyo Electric Power Company had the world’s highest one-month default risk among rated companies, with a default probability of 29.80%. Irish Life & Permanent PLC and Bank of Ireland were ranked second and third, respectively.

In March, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.69%, an increase of 9 basis points. The percentage of companies with default probabilities between 5% and 10% was 0.93%, an increase of 2 basis points. The percentage of the universe with default probabilities between 10% and 20% was 0.36% of the universe, a decrease of 2 basis points, while the percentage of companies with default probabilities over 20% was 0.12% of the total universe in January, a decrease of 1 basis point.

Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Monday, “While we saw a slight increase in the troubled company index and in volatility there was not much change to the list of the 20 companies with the highest probability of default within the index. Seven of the top ten were financial concerns with most having a heavy exposure to Europe. Of the twenty riskiest firms with legacy ratings at the end of March, seven had investment grade ratings. Fourteen of the twenty riskiest firms experienced increases in default probability over the past month. At the 78th percentile credit conditions overall are relatively benign but the troubled company index clearly shows credit stress that is company specific and bears monitoring”.

The Kamakura troubled company index measures the percentage of more than 30,000 public firms in 37 countries that have annualized 1 month default risk over one percent. Kamakura’s index had reached a recent peak of 25.57% in November 2008. The average index value since January 1990 is 12.27%. Since November, 2010, the Kamakura index has used 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 version 5.0 model was estimated over the period from 1990 to 2008, so it includes the insights of the worst part of the recent credit crisis. 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.

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