Kamakura Reports Improvement in Corporate Credit Quality in July
Kamakura Troubled Company Index Decreases 1.29% to 7.22%
NEW YORK, August 1, 2013: Kamakura Corporation reported Thursday that the Kamakura troubled company index ended the month of July at 7.22%, a decrease of 1.29% since the end of June. The index reflects the percentage of the Kamakura 33,000 public firm universe that has a default probability over 1.00%. A decrease in the index reflects improving credit quality.
As of July 31st, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.96%, down 0.85% from last month. The percentage of the universe with default probabilities between 5% and 10% was 0.81%, down 0.29% from last month while the percentage between 10% and 20% was 0.32%, down 0.09%. The percentage of companies with default probabilities over 20% was 0.13%, down 0.13% from last month. The index hit an intra-month high of 7.91% on July 2nd, while the intra-month low of 6.97% was on July 30th. Month over month improvements were evident along the entire distribution of the index.
At 7.22%, the troubled company index is at the 75th percentile of historical credit quality (with 100 being best all time) over the period from January, 1990 to the present. Eurobank Ergasias SA had the world’s highest one-month default risk among rated companies, at 16.24%. Among the ten riskiest firms in July, six were European firms; two were from Brazil and one each from Argentina (although it trades on the NYSE) and China.
Martin Zorn, President and COO for Kamakura Corporation, said Thursday, “Europe continued to be the primary area of credit worries again in July, with on-going problems in the banking and telecommunications sectors. We also saw emerging concerns in South America that at this point appear localized and policy related. July saw a busy economic calendar as well as the release of corporate earnings. In the US, the bankruptcy filing by the city of Detroit added headline risk and impacted investment funds flow and relative spreads. Employment and inflation expectations will continue to drive US interest rates and the corresponding impact on leveraged balance sheets. We expect these trends to continue and recommend focus on those companies with higher than average default probabilities.”
The Kamakura troubled company index measures the percentage of more than 32,000 public firms in 37 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 12.00%. Since November, 2010, the Kamakura index has used the annualized one month default probability produced by the KRIS version 5.0 Jarrow-Chava reduced form default probability model, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The version 5.0 model was estimated over the period from 1990 to 2008, and includes the insights of the worst part of the recent credit crisis. The countries currently covered by the index include Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Poland, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, United Kingdom, and the United States.
To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow Kamakura CEO Dr. Donald van Deventer (www.twitter.com/dvandeventer), Kamakura Chief Administrative Officer Martin Zorn (www.twitter.com/riskmgrhi), and Kamakura’s official twitter account (www.twitter.com/KamakuraCo).
About Kamakura Corporation
Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura was named to the World Finance 100 by the Editor and readers of World Finance magazine in 2012. In 2010, Kamakura was the only vendor to win 2 Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 8.1, is the first enterprise risk management system with users focused on credit risk, asset and liability management, market risk, stress testing, liquidity risk, counterparty credit risk, and capital allocation from a single software solution. The KRIS public firm default service was launched in 2002. The KRIS sovereign default service, the world’s first, was launched in 2008, and the KRIS non-public firm default service was offered beginning in 2011. Kamakura has served more than 220 clients ranging in size from $1.5 billion to $1.6 trillion in assets. Kamakura’s risk management products are currently used in 37 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, the Ukraine, Eastern Europe, the Middle East, Africa, South America, Australia, Japan, China, Korea, India and many other countries in Asia.
Kamakura has world-wide distribution alliances with Fiserv (www.fiserv.com), SCSK Corporation (http://www.scsk.jp/index_en.html), and Unisys (www.unisys.com), making Kamakura products available in almost every major city around the globe.
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