Kamakura Corporation announced Friday that the Kamakura index of troubled public companies resumed its long run improvement, dropping 0.09% to 10.21% in June. The index had jumped from 9.46%% in April to 10.30% in May after declining in 12 of the 13 prior 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 June were better than credit conditions in 67.2 percent of the months since the indexâs initiation in January 1990. The index is still 3.43 percentage points better than the indexâs historical average of 13.64%. 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 June, the percentage of the global corporate universe with default probabilities between 1% and 5% was 7.06%, an increase of 8 basis points. The percentage of companies with default probabilities between 5% and 10% was 1.57%, a decrease of 5 basis points. The percentage of the universe with default probabilities between 10 and 20% was 0.97% of the universe, down 4 basis points, while the percentage of companies with default probabilities over 20% was 0.61% of the total universe in June, a decline of 8 basis points.
David Boldon, Washington DC representative for Kamakura Corporation, said Friday, âWhile the overall credit quality of public firms has improved, five rated firms showed significant increases in short-run credit risk. YRC Worldwide, Blockbuster, National Bank of Greece, Mizuho Financial Group, and First Bancorp all showed a default probability jump of more than 200 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, 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.