Kamakura Corporation reported Thursday that the Kamakura index of troubled public companies closed the month of August at 7.02%, while on August 1st the index was at the 6.99%. The index reflects the percentage of the Kamakura coverage universe that has a default probability over 1%. The index hit an intra-month high of 7.41% on August 10th, while the intra-month low of 6.86% was on August 17th.
On August 31st, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.84%, the percentage of universe with default probabilities between 5% and 10% was 0.83%, while the percentage between 10% and 20% was 0.29% and the percentage of companies with default probabilities over 20% was 0.06%. This represented qualitative improvements across the entire distribution of the index relative to their July 31st values.
At 7.02%, the troubled company index is at the 79th percentile of historical credit quality (with 100 being best all time) over the period from January, 1990 to the present. HIBU PLC, formerly known as Yell Group, PLC continues to have the world’s highest one-month default risk among rated companies with an annualized default probability of 47.12%. Among the top ten riskiest firms, there were three from the U.S., two from Japan and one each from Brazil, Finland, Italy, Great Britain and Ireland. HIBU PLC (YELL) was not only the riskiest firm among the group but also had the largest increase in default probability over the past month.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Friday, “The economic news continues to be mixed, though corporate balance sheets continue to improve. In the U.S., we have seen stability in the housing market, a continued rally in the equity markets and the slight upward revision to Q2 growth. At the same time, Europe continues to provide hope one week, and the anxiety the next. Finally, all eyes are on China to see if they pull off a soft landing. All in all, this points to a “wait and see” summer which is consistent in the behavior of our troubled company index.”
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 12.19%. 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.