Kamakura Troubled Company Index Shows Slight Improvement in Credit Quality in March

Kamakura Troubled Company Index Declined 0.54% to 5.47%.

Kamakura Corporation reported Tuesday that the Kamakura index of troubled public companies fell in March. The index set an all-time low of 4.36% on December 17, 2010 but has shown quite a bit of volatility over the past month hitting an intra-month high of 7.28% on March 16 but then falling throughout the month. The intra-month spike was caused by the earthquake, tsunami and subsequent Fukushima nuclear power plant crisis. These same disaster-related effects made TEPCO 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 22.25% in January, 2009. Credit conditions at the end of March were better than credit conditions in 98.08% of the months since the index’s initiation in January 1990.

The average index value since January 1990 is 12.56%.

The all-time high in the index was 27.41%, recorded on October 31, 2001.

In March, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.45%, a decrease of 39 basis points. The percentage of companies with default probabilities between 5% and 10% was 0.74%, a decrease of 7 basis points. The percentage of the universe with default probabilities between 10 and 20% was 0.21% of the universe, down 7 basis points, while the percentage of companies with default probabilities over 20% was 0.07% of the total universe in March, a decrease of 1 basis point.

Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Wednesday, “Among the 2,116 firms in the KRIS corporate universe with legacy ratings, only 14 firms showed increases in 1 month annualized default risk of more than 60 basis points with 8 of them being Japanese companies. There were three firms headquartered in the United States and all were in the transportation sector with two being in the marine transport segment. These results continue to reflect the fact that the balance sheets of most corporations remain strong and problem situations have tended to be firm specific or tied to specific global events.”

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.

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