Press Release

Kamakura: Long-Term Credit Risk Continues to Mount.
Kamakura Troubled Company Index at the 50th Percentile

NEW YORK, December 3, 2018: The Kamakura Troubled Company Index ® ended November at 11.19%, a decrease of 1.50% from the end of October. 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 November, the percentage of companies with a default probability between 1% and 5% was 9.05%—a decrease of 1.20% over the previous month. The percentage with a default probability between 5% and 10% was 1.36%, a decrease of 0.14%. Those with a default probability between 10% and 20% amounted to 0.63% of the total, down 0.12%, and those with a default probability of over 20% amounted to 0.15%, down 0.04% from a month earlier.

Volatility moderated dramatically, with the index ranging from 10.69% on November 8 to 12.68% on November 20. For the year, the index has ranged from 7.00% on January 15 to 15.19% on February 8.

At 11.19%, the troubled company index now sits at the 50th percentile of historical credit quality as measured since 1990. Among the 10 riskiest-rated firms listed in November, four are in the U.S., with one each in Australia, Belgium, Great Britain, Hong Kong, the Netherlands, and Spain. Debenhams PLC (DEB: UK) became the riskiest global firm, with a one-year Kamakura Default Probability (KDP) of 43.09%. Iconix Brand Group, Inc. (ICON: NASDAQ) experienced a significant reduction in its KDP, driven by improvement in the ratio of its net income to market assets.

Also in November, four companies in Kamakura’s coverage universe defaulted. Two were from the U.S. and one each from Great Britain and Greece.

The Kamakura expected cumulative default curve for all rated companies worldwide widened, with the one-year default probability decreasing by 0.19% to 0.98% while the 10-year probability increased by 0.57% to 13.54%.

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

Markets ended November with one their best weeks in years, based in part on the hope that a trade deal between the U.S. and China during the G-20 Summit might be achieved. Also helpful were remarks earlier in the month by the Federal Reserve, which were largely interpreted as dovish, creating the expectation that interest rates were approaching target levels. Market factors, especially during periods of minimal financial releases, tend to be significant drivers of default probabilities.

Short-term default probabilities, especially the one-month KDP, were positively influenced by the decline in the VIX during the second half of the month. Analysis of those companies with increasing KDPs during the month indicated that the three-month sigma was a primary factor in the increase.

Late-cycle portfolio management requires constant surveillance and analysis. It is important to understand the drivers of default probability, and to do that, you need a robust model that provides transparency. Equally important is understanding the relationship between short-term and long-term default probabilities, especially late in the credit cycle. High amounts of leverage in both the corporate and the public sectors are critical factors contributing to increasing long-term risk. Identifying companies displaying an inverted default curve (short-term default probabilities that are increasing and higher than longer-term default probabilities) is an excellent early warning signal that suggests closer analysis.

About the Troubled Company Index
The Kamakura troubled company index (Reg. U.S. Pat) 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 14.40%. 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 recognized as a category leader in the Chartis Report,Technology Solutions for Credit Risk 2.0 2018. 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.

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 (

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
Web site: