Kamakura Troubled Company Index Increases 0.26% to 5.05% in November
Kamakura Corporation reported Monday that the Kamakura index of troubled public companies closed the month of November at 5.05%. The index reflects the percentage of the Kamakura coverage universe that has a default probability over 1%. An increase in the index reflects deteriorating credit quality. The index hit an intra-month high of 5.32% on November 27th, while the intra-month low of 4.79% was on November 2. The index reflected a decline in credit quality through the first half of the month before stabilizing and then improving as the month came to a close. Overall credit conditions remained strong throughout the period.
On November 30th, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.35%, the percentage of universe with default probabilities between 5% and 10% was 0.50%, while the percentage between 10% and 20% was 0.15% and the percentage of companies with default probabilities over 20% was 0.05%. This represents slight qualitative declines in quality across the entire distribution of the index relative to their October values.
At 5.05%, the troubled company index is at the 99th percentile of historical credit quality (with 100 being best all time) over the period from January, 1990 to the present. Sharp Corporation had the world’s highest one-month default risk among rated companies with an annualized default probability of 15.37%. Among the top ten riskiest firms, there were three from the U.S., two from Japan and one each from, China, Ireland, Italy, Indonesia, and Russia.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Monday, “We continue to see strong credit conditions across the aggregate index while risk continues to be company specific and widely dispersed. With the US election behind us the focus will shift to the “fiscal cliff” and quantitative analysis of the economic releases in December and their implications for the coming year.”
The Kamakura troubled company index measures the percentage of almost 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 12.12%. 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, and 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.