Kamakura Corporation announced Monday that the Kamakura index of troubled public companies made its fourth consecutive dramatic improvement in July after reaching a peak of 24.3% in March. The Kamakura global index of troubled companies dropped 1.7 percentage points to 14.7% of the public company universe in July. 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 38.8% of the months since the index’s initiation in January 1990. In March, by contrast, credit conditions were better than only 3.6% of the monthly periods since 1990. The all-time low in the index was 5.4%, recorded in April and May, 2006, while the all-time high in the index was 28.0%, recorded in September 2001. The index is based default probabilities for 26,951 companies in 30 countries. The absolute number of firms in the “over 20%” default probability category declined by 84 firms to 296.
Kamakura’s president Warren A. Sherman said Monday, " During the month of July, the rated public companies showing the sharpest rise in short term default risk were CIT Group, Chem Rx Corporation, American Axle, and Sharp Holding Corporation. In July, the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by 0.9 percentage points to 9.8%. The percentage of companies with default probabilities between 5% and 10% was down 0.4 percentage points to 2.3% of the universe in July. The percentage of the universe with default probabilities between 10 and 20% was down 0.1 percentage points to 1.5% of the universe. The percentage of companies with default probabilities over 20% was down sharply by 0.3 percentage points to 1.1% of the total universe in July. In March, by contrast, 3.1% of the total universe had default probabilities over 20%."
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.
Kamakura ceo Dr. Donald R. van Deventer and other members of Kamakura senior management also maintain an active blog on key risk management issues.
