Kamakura Troubled Company Index Declines to 11.07%
Kamakura Corporation reported Monday that the Kamakura index of troubled public companies improved in December for the eighth time in the last nine months. The index declined from 11.45% in November to 11.07% in December, a total decline of 12.93 percentage points for 2009. Kamakura’s index had reached a peak of 24.3% in March.
Kamakura defines a troubled company as a company whose short term default probability is in excess of 1%. Credit conditions are now better than credit conditions in 63.6 percent of the months since the index’s initiation in January 1990, and the index is 2.63 percentage points better than the index’s historical average of 13.7%. The all-time low in the index was 5.40%, recorded on May 11, 2006, while the all-time high in the index was 28.0%, recorded on September 28, 2001.
The index is based on default probabilities for almost 27,000 companies in 30 countries. Kamakura announced that both the index and daily updates on default probabilities for all 27,000 companies are now available much earlier in the business day, starting from 8 a.m. in London and 3 a.m. in New York.
In December, the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by 0.29 percentage points to 7.34%. The percentage of companies with default probabilities between 5% and 10% was down 0.05 percentage points to 1.80%. The percentage of the universe with default probabilities between 10 and 20% was down 0.05 percentage points to 1.04% of the universe, while the percentage of companies with default probabilities over 20% was up slightly, increasing 0.01 percentage points to 0.89% of the total universe in December.
Kamakura’s president Warren A. Sherman said Monday, “We are gratified by the intense client interest in the Kamakura troubled company index, which we are now updating daily on. The rated firms showing the largest increase in 1 year default risk in December included NCI Building Systems, Japan Airlines, and Toho Bank. Citigroup, despite huge government assistance, showed the 13th largest rise in default probabilities of 1,961 rated companies, with its one year default probabilities up 261 basis points.
The Kamakura 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.
