Calm Before the Storm?

01/06/2020 01:27 PM

Calm Before the Storm?

Kamakura Troubled Company Index Increased by 0.04% to 12.90%

NEW YORK, January 6, 2020: While the markets ended the year in positive territory, the next few months should prove to be interesting.

The Kamakura Troubled Company Index® has remained relatively stable over the past few months and has shown improvement over the past year. It ended the year at 12.90%, an increase of 0.04% from the end of November and down 2.24% for the year. During the month the index varied from 12.5% to 13.8%, continuing the trend of modest volatility. The index reflects the percentage of 40,500 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 December, the percentage of companies with a default probability between 1% and 5% was 10.09%, a decrease of 0.09% from the prior month. The percentage with a default probability between 5% and 10% was 1.84%, an increase of 0.13%. Those with a default probability between 10% and 20% amounted to 0.78% of the total, an increase of 0.01%; and those with a default probability of over 20% amounted to 0.19%, a decrease of 0.01% from the prior month.

At 12.90%, the Troubled Company Index remains at the 42nd percentile of historical credit quality as measured since 1990. Among the 10 riskiest-rated firms listed in December, six are in the U.S., with two each in Spain and the U.K.

Ascena Retail Group Inc. (NASDAQ:ASNA), which was the riskiest- rated firm last month, produced better than expected earnings, improving its KDP enough to escape from the top ten riskiest list, although it remains in the riskiest 1% of our coverage universe. The company also announced a reverse stock split to avoid delisting on December 20. The Spanish discount supermarket chain Distribuidora Internacional became the riskiest company, with a one-month KDP of 40.39%–an increase of 20.04% over the past three months.

During the month there were 13 defaults, with four in India, three each in Canada and China, two in the U.S., and one in Malaysia.

The Kamakura expected cumulative default curve for all rated companies worldwide narrowed, as the one-year expected default rate decreased by 0.23% to 1.01% and the 10-year rate decreased by 0.55% to 14.23%.


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

The markets ended 2019 in a celebratory way, but the big question is, what will the new decade bring? We will close the year with a brief review of global defaults in 2019.

There were 86 defaults in the Kamakura coverage universe. On a percentage basis, the top five markets for defaults were the U.S., the UK, Australia, Canada, and China. As we ended the year, the fastest-growing market for defaults was India.

The following chart shows defaults over the past year as a percentage of issuers by country.

Looking at the U.S. defaults by sector, we can see that energy, retail and health care were the industries with the largest number of defaults:

As we enter 2020, we will analyze the drivers of defaults for the past year and then shift our focus to predictive analytics. Wishing you all the best in the new year!

About the Troubled Company Index

The Kamakura Troubled Company Index® measures the percentage of 40,575 public firms in 76 countries that have an annualized one- month default risk of over one percent. The average index value since January 1990 is 14.33%. 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 76 countries currently covered by the index are: Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Belize, Botswana, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Ghana, Greece, Hungary, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kenya, Kuwait, Luxembourg, Malaysia, Malta, Mauritius, 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, Tanzania, Taiwan, Thailand, Turkey, the United Arab Emirates, Uganda, the UK, the U.S., Vietnam and Zimbabwe.

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 (

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 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
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