Kamakura Troubled Company Index Decreases 0.30% to 5.77%
Kamakura Corporation reported Monday that the Kamakura troubled company index ended the month of January at 5.77%, a decrease of 0.30% from the prior month. The index reflects the percentage of the Kamakura 35,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality.
As of the end of January, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.79%, down 0.32% from December. The percentage of the universe with default probabilities between 5% and 10% was 0.63%, up 0.01% from last month while the percentage between 10% and 20% was 0.26%, up 0.02%. The percentage of companies with default probabilities over 20% was 0.09%, down 0.01%. The index hit an intra-month high of 5.89% on January 2nd, while the intra-month low of 5.26% was on January 21st. The magnitude of change in the index during the month was 63 basis points.
At 5.77%, the troubled company index is at the 94th percentile of historical credit quality (with 100 being best all time) over the period from January 1990 to the present. Among the ten riskiest firms in January, four were from China, four were European firms and two were from the United States.
Martin Zorn, President and COO for Kamakura Corporation, said Monday, “Overall credit conditions remain generally very good. Benign credit conditions create an environment where lenders tend to get complacent. On January 30th the OCC released their latest survey showing that banks’ underwriting standards continue to ease. The trend in the list of riskiest firms over the past several months has shown a significant increase in the number of Chinese firms on the list as well as continued pressure on select European and emerging market banks. During the month of January, Spanish gaming company Codere S.A. defaulted for the second time in 4 months. Codere S.A. was listed by Kamakura Corporation as the world's riskiest rated firm last month.”
The Kamakura troubled company index measures the percentage of more than 35,000 public firms in 56 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 11.80%. 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 are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, Chile, China, Colombia, Cyprus, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Viet Nam.