Kamakura Reports Improvement in Corporate Credit Quality in June

New York - 3 July 2012

Kamakura Troubled Company Index Declines 0.86% to 8.13% in June

Kamakura Corporation reported Monday that the Kamakura index of troubled public companies improved, declining 0.86% to 8.13% in June. The decline in the index reflects an improvement in corporate credit quality, which has only shown improvement in four of the last fourteen months. The index hit an intra-month high of 9.25% on June 4 while having an intra-month low of 8.13% at month-end. The index moved in a narrow range throughout the month with improvements occurring during the middle of the month and at month-end. At the 8.13% level, corporate credit quality is at the 62nd 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 57th percentile. Yell Group PLC continues to have the world’s highest one-month default risk among rated companies with a default probability of 22.74%.

In June, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.53%, a decrease of 62 basis points. The percentage of companies with default probabilities between 5% and 10% was 1.11%, a decrease of 18 basis points. The percentage of the universe with default probabilities between 10% and 20% was 0.39% of the universe, a decrease of 6 basis points, while the percentage of companies with default probabilities over 20% was unchanged at 0.10% of the total universe.

Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Friday, “During June, news out of Europe seemed to push all other business attention to the back burner. While attention may have been diverted to follow the EU news as if it were a sporting match, the month once again proved that unexpected events – JPMorgan explains its trading loss, Supreme Court upholds Healthcare law, German two-year yields turn negative – demonstrates the need for careful and frequent analysis. While the Troubled Company Index improved over the month, seven the ten riskiest firms experienced increases in default probability over that time. While EU names continued to dominate the list of riskiest firms, we have three firms from the United States and one from Brazil on the list.”

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 12.22%. 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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