Kamakura Troubled Company Index Decreases 0.11% to 7.88%
Kamakura Corporation reported Monday that the Kamakura troubled company index ended the month of May at 7.88%, a decline of 0.11% since the end of April. The index reflects the percentage of the Kamakura 32,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects deteriorating credit quality. The index hit an intra-month low of 7.30% on May 20th and an intra-month high of 7.88% on May 31st.
As of May 31st, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.31%. The percentage of the universe with default probabilities between 5% and 10% was 1.02%, while the percentage between 10% and 20% was 0.38%. The percentage of companies with default probabilities over 20% was 0.17%, the same as last month.
At 7.88%, the troubled company index is at the 63rd percentile of historical credit quality (with 100 being best all time) over the period from January, 1990 to the present. Banco Popular had the world’s highest one-month default risk, among rated companies, at 11.32%. USEC, Inc. had the highest one-month default risk among companies based in the United States. Among the ten riskiest firms in May, seven were European firms; two were from Brazil and one from Canada.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Monday, “Europe continued to be the primary area of credit worries again this month, with on-going problems in the banking and telecommunications sectors. An emerging story has been the increase in rates with the 10-year UST yield increasing from 1.67% to 2.13% and a steepening of the curve. We expect the nervousness about credit conditions to heighten in the months ahead as the economy reacts to the end of Quantitative Easing.”
The Kamakura troubled company index measures the percentage of more than 32,000 public firms in 37 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 12.01%. 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, Luxembourg, 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.