Kamakura Corporation announced Tuesday that the Kamakura index of troubled public companies improved again in July, falling 0.58% to 9.63%. The index has now improved in 13 of the past 15 months. Kamakuraâs index had reached a recent peak of 24.3% in March, 2009. Kamakura defines a troubled company as a company whose short term default probability is in excess of 1%. Credit conditions in July were better than credit conditions in 72.4 percent of the months since the indexâs initiation in January 1990. The index is 3.98 percentage points better than the indexâs historical average of 13.61%. 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 more than 29,200 companies in 33 countries.
In July, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.55%, a decline of 51 basis points. The percentage of companies with default probabilities between 5% and 10% was 1.50%, a decrease of 7 basis points. The percentage of the universe with default probabilities between 10 and 20% was 0.91% of the universe, down 6 basis points, while the percentage of companies with default probabilities over 20% was 0.67% of the total universe in July, an increase of 6 basis points.
David Boldon, Washington DC representative for Kamakura Corporation, said Friday, âCorporate credit quality has improved so dramatically over the last 15 months that only 5 companies, shown in the following chart, had increases in their one month default probabilities of more than 80 basis points. Of these firms, only YRC Worldwide showed a 1 month default probability of more than 300 basis points.â
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, 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.