Press Release

Kamakura: Corporate Credit Quality Declines in June
Kamakura Troubled Company Index Tumbles to 63rd Percentile

NEW YORK, July 2, 2018: The Kamakura Troubled Company Index ended June at 9.69%, an increase of 0.40% from the prior month. The index reflects the percentage of 39,000 public firms that have a default probability of over 1%. An increase in the index reflects declining credit quality, while a decrease reflects improving credit quality.

At the close of June, the percentage of companies with a default probability between 1% and 5% was 7.91%—an increase of 0.92% over the previous month. The percentage with a default probability between 5% and 10% was 1.23%, a decrease of 0.46%. Those with a default probability between 10% and 20% amounted to 0.45% of the total, down 0.07%, and those with a default probability of over 20% amounted to 0.10%, up 0.01% from a month earlier. Volatility increased, with the index ranging from 7.83% on June 7 to 10.16% on June 27. For the year, the index has ranged from 7.00% on January 15 to 15.19% on February 8.

At 8.92%, the troubled company index now sits at the 72nd percentile of historical credit quality as measured since 1990. Among the 10 riskiest-rated firms listed in May, six are from the United States, with one each from Australia, Canada, Great Britain, and the Netherlands. Altice NV (AMS: ATC) was the riskiest global company, with a one-year Kamakura Default Probability (KDP) of 35.29%. Altice, a Netherlands-based multinational telecommunications company in the process of restructuring, has experienced significant equity volatility. In May, five companies in Kamakura’s coverage universe experienced default, three of them in the UK.

The Kamakura expected cumulative default curve for all rated companies worldwide narrowed slightly, with the one-year default probability increasing by 0.07% to 0.73% and the 10-year declining by 0.22% to 12.54%.

By Martin Zorn, President and Chief Operating Officer, Kamakura Corporation

Movement in the index over the past month was very interesting. Each of the ten riskiest companies was affected by different factors. These ranged from the company-specific, including financial performance, to the equity-related, such as the three-year stock price range or ninety-day volatility. In other cases, movement was related to macroeconomic factors such as oil prices.

Last month we discussed the importance of screening by industry and incorporating country-specific factors into the screen. This month’s observations demonstrate the importance of drilling down on the company-specific factors within your watch list.

The rising dollar and escalating tensions over tariffs and potential trade wars have been very unsettling to the markets. The decline of China’s currency and the slide in the country’s stock market—now clearly in bear market territory—add to the narrative of uncertainty. So does the election in Mexico, which raises questions about the future of NAFTA and the direction of the American immigration policy debate.

The first half of the year ended with U.S. stocks managing a slight gain, despite outbreaks of increased volatility. As we look towards the second half of the year, the markets seem to be expecting growth, though many questions remain.

Core inflation hit the Fed’s target for the first time in six years. The long-running bull market remains intact while global trade poses uncertainty. In the U.S. pending home sales dropped for the fifth straight month, and mortgage applications dropped as well. The Case-Shiller index ended the month softer than expected and was joined by a disappointing durable goods report. In the UK, housing prices continued to moderate and the pound continued to drift lower.

In the midst of this uncertainty, analyzing markets by incorporating macro-factor-driven reduced-form models is the prudent approach to take.

About the Troubled Company Index

The Kamakura troubled company index measures the percentage of 39,000 public firms in 68 countries that have an annualized one- month default risk of over one percent. The average index value since January, 1990 is 14.46%. Since November, 2015, the Kamakura index has used the annualized one-month default probability produced by the KRIS version 6.0 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 KRIS version 6.0 models were developed using a data base of more than 2.2 million observations and more than 2,600 corporate failures. A complete technical guide, including full model test results and parameters, is provided to subscribers. The KRIS service also includes a wide array of other default probability models that can be seamlessly loaded into Kamakura’s state-of-the-art enterprise risk management software engine, the Kamakura Risk Manager. Available models include the non-public-firm default model, the commercial real estate model, the U.S. bank model, and the sovereign model. Related data includes credit default swap trading volume by reference name, market implied credit spreads, and prices on all traded corporate bonds traded in the U.S. market. Macro factor parameter subscriptions include Heath, Jarrow, and Morton term structure models for government securities in the U.S., Germany, the UK, Canada, Spain, Sweden, Australia, Japan, Thailand, and Singapore. All parameters are derived in a no-arbitrage manner consistent with seminal papers by Heath, Jarrow, and Morton, as well as Amin and Jarrow. A KRIS Macro Factor Scenario Service subscription includes both risk-neutral and “real world” empirical scenarios for interest rates and macro factors.

The version 6.0 model was estimated over the period from 1990 to May 2014 and includes the insights of the entirety of the recent credit crisis. The 69 countries currently covered by the index are: Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Belize, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, Nigeria, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the UK, the U.S., and Vietnam.

To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow:

Kamakura CEO Dr. Donald van Deventer (
Kamakura President Martin Zorn ( and
Kamakura’s official twitter account (

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 2017, 2016 and 2012. In 2010, Kamakura was the only vendor to win two Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 10.0.3, is the first enterprise risk management system for 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 added its U.S. Bank default probability service in 2014.

Kamakura has served more than 330 clients with assets ranging in size from $1.5 billion to $3.0 trillion. Its risk management products are currently used in 47 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, Ukraine, South Africa, Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam, and many other countries in Asia, Europe and the Middle East.

For more information, please contact:
Kamakura Corporation
2222 Kalakaua Avenue, Suite 1400, Honolulu, Hawaii 96815
Telephone: 1-808-791-9888
Facsimile: 1-808-791-9898
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