Kamakura index of troubled public companies made a second consecutive dramatic improvement in May after reaching its worst point, 24.3%, in the current recession in March. The Kamakura global index of troubled companies decreased by 3.3% to 18.8% of the public company universe. The 3.3% drop in the index is the 4th largest decline in the 230 month history of the troubled company index. The largest one month decline was a 4.1% drop in January 2003. Kamakura defines a troubled company as a company whose short term default probability is in excess of 1%.
The all-time high in the index was 28.0%, recorded in September 2001. Credit conditions are now better than credit conditions in 23.5% of the months since the index’s initiation in January 1990. In March, by contrast, credit conditions were better than only 3.6% of the monthly periods since 1990. The all-time low in the index was 5.4%, recorded in April and May, 2006. The index is based on expanded coverage of more than 26,500 companies in 30 countries, an increase of more than 2500 firms since the previous month.
In spite of the increase in coverage, the absolute number of firms in the “over 20%” default probability category declined by 85 firms.
“In November of last year, we identified Thomson of France as showing one of the largest increases in default risk in our public company universe,” says Warren A. Sherman, Kamakura’s president. “Thomson defaulted selectively in May. Also in May, the rated public companies showing the sharpest rise in short term default risk were Spanish Broadcasting System, Advanta, Eastman Kodak, Pioneer Corp (Japan), and Radio One Inc. General Motors ranked as the seventh largest increase in risk. In May, the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by 1.4% to 12.0%. The percentage of companies with default probabilities between 5% and 10% was down 0.6% to 3.0% of the universe in May. The percentage of the universe with default probabilities between 10 and 20% was down 0.7% to 2.0% of the universe. The percentage of companies with default probabilities over 20% was down by a very significant 0.7% to 1.8% of the total universe in May.”
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, Denmark, Finland, France, Germany, Hong Kong, India, 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.
D.C.