Upgraded Version of Kamakura Troubled Company Index Shows Strong Improvement in Credit Quality in November
Kamakura Troubled Company Index Down 0.56% to 5.10%
Kamakura Corporation reported Thursday that the Kamakura index of troubled public companies showed significant improvement in November, dropping 0.56% to 5.10%. The Kamakura troubled company index measures the percentage of 29,400 public firms in 33 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. During the month of November, the index reached an all time low (after eliminating the impact of holidays) of 4.71% before rising at the end of the month to 5.10%. Credit conditions at the end of November were better than credit conditions in any of the months since the index’s initiation in January 1990. This result, surprising to many, reflects the fact that companies in the “troubled category” are almost exclusively financial institutions or housing related firms, rather than a broad cross section of the economy.
The all-time high in the index was 27.41%, recorded on October 31, 2001.
In November, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.26%, a decrease of 26 basis points. The percentage of companies with default probabilities between 5% and 10% was 0.59%, a decrease of 17 basis points. The percentage of the universe with default probabilities between 10 and 20% was 0.20% of the universe, down 11 basis points, while the percentage of companies with default probabilities over 20% was 0.05% of the total universe in November, a decrease of 2 basis points.
David Boldon, Washington DC representative for Kamakura Corporation, said Thursday, “Within the overall KRIS corporate universe, the only firms showing a deterioration in short term default risk of more than 1 percent were Irish financial institutions, as shown in the following chart. We are very pleased at the warm reception the financial community has given to version 5 of the Kamakura troubled company index.”
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, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Luxemburg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States.
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