Kamakura Corporation reported Tuesday that the Kamakura index of troubled public companies deteriorated sharply in March after holding steady in January and February. The Kamakura global index of troubled companies increased by 1.1% to 24.3% of the public company universe. This is 0.3% above the current recession’s previous peak of 24.0% reported for December 2008. Kamakura defines a troubled company as a company whose short term default probability is in excess of 1%. The all-time high in the index was 28.0%, recorded in September 2001. Credit conditions are now worse than credit conditions in 96.4% of the period since the index’s initiation in January 1990. The all-time low in the index was 5.4%, recorded in April and May, 2006. The index is based on expanded coverage of 23,900 companies, an increase of more than 1,000 firms since the previous month. Kamakura reported that the expanded corporate coverage had no significant impact on the level of the index. The index now covers more than 23,900 public companies in 30 countries using the fourth generation version of Kamakura’s advanced credit models. The increase in coverage this month is predominately made up of Canadian public firms.
“On March 2, Kamakura reported that Chemtura Corporation was among the rated companies with the largest one month jumps in short term default risk,” said Warren Sherman, Kamakura President and chief operating officer. “Chemtura filed for Chapter 11 bankruptcy on March 18. This month, among rated public companies, the companies showing the sharpest rise in short term default risk were Blockbuster Incorporated, Fairpoint Communications, Cumulus Media, Gannett Co., and Eddie Bauer Inc. In March, the percentage of the global corporate universe with default probabilities between 1% and 5% increased by 0.5% to 13.8%. The percentage of companies with default probabilities between 5% and 10% was up 0.2% to 4.5% of the universe in March. The percentage of the universe with default probabilities between 10 and 20% was up 0.1% to 2.9% of the universe. The percentage of companies with default probabilities over 20% was up by a dramatic 0.4% to 3.1% of the total universe in March.”
The Kamakura troubled company index is a global index covering 30 countries. The index uses the annualized one month default probability produced by the best performing credit model of the Kamakura Risk Information Services default and correlation service. The model used is the fourth generation Jarrow-Chava reduced form default probability, 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, Denmark, Finland, France, Germany, Hong Kong, India, 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.
