Kamakura Troubled Company Index Reverses Course and Shows Deterioration in Credit Quality in May
Kamakura Troubled Company Index Increases 0.77% to 5.69% Kamakura Corporation reported that the Kamakura index of troubled public companies increased 77 basis points in May to 5.69%. The index set an all-time low of 4.36% on December 17, 2010. The index was range bound from a low of 5.31% on May 2 to a high
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Editorial Team
- June 3, 2011
- 3 minutes
Kamakura Troubled Company Index Increases 0.77% to 5.69%
Kamakura Corporation reported that the Kamakura index of troubled public companies increased 77 basis points in May to 5.69%. The index set an all-time low of 4.36% on December 17, 2010. The index was range bound from a low of 5.31% on May 2 to a high of 6.07% on May 23. The upward trend in default probability seen throughout the month was in line with weakening economic headlines. Tokyo Electric Power Company continues to be the firm with the world’s highest one-month default risk among rated companies.
The Kamakura troubled company index measures the percentage of 29,400 public firms in 37 countries that have annualized 1 month default risk over one percent. Beginning with the November 2010 index value, the Kamakura troubled company index is now based on the version 5.0 default models from Kamakura Risk Information Services. Previously, the index was reported using the KRIS version 4.1 models. The version 5 models were estimated over the period from January 1990 to December 2008 and therefore capture the key events of the credit crisis in the fall of 2008.
Kamakura’s index had reached a recent peak of 25.57% in November 2008. Credit conditions at the end of May were better than credit conditions in 95.45% of the months since the index’s initiation in January 1990.
The average index value since January 1990 is 12.48%.
The all-time high in the index was 27.41%, recorded on October 31, 2001.
In May, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.63%, an increase of 54 basis points. The percentage of companies with default probabilities between 5% and 10% was 0.74%, an increase of 17 basis points. The percentage of the universe with default probabilities between 10 and 20% was 0.24% of the universe, an increase of 3 basis points, while the percentage of companies with default probabilities over 20% was 0.08% of the total universe in May, an increase of 3 basis points.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Wednesday, “Among the 2,144 firms in the KRIS corporate universe with legacy ratings, 24 firms showed increases in 1 month annualized default risk of more than 60 basis points. This number of firms showing this level of credit deterioration is twice the number relative to recent months. The North American companies on the list continue to be driven by firm specific factors.”
Beginning in November, 2010, the Kamakura index uses 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 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.
