Kamakura Reports First Improvement in Corporate Credit Quality in Six Months

Location: New York
Author: Martin Zorn
Date: Monday, November 7, 2011

Kamakura Corporation reported that the Kamakura index of troubled public companies showed considerable improvement in October, dropping 247 basis points to 7.26% after deteriorating in the five previous months. The index reached an intra-month low of 6.68%.  At the 7.26% level, corporate credit quality is at the 75th percentile (with 100 being best all time credit quality) over the period from 1990 to the present. In December, 2010, by contrast, the index was at the 99th percentile of credit quality. Tokyo Electric Power Company continues to be the firm with the world’s highest one-month default risk among rated companies, with a default probability of 52.88%.

In October, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.81%, a decrease of 172 basis points. The percentage of companies with default probabilities between 5% and 10% was 0.94%, a decline of 45 basis points.  The percentage of the universe with default probabilities between 10% and 20% was 0.39% of the universe, a decrease of 18 basis points, while the percentage of companies with default probabilities over 20% was 0.11% of the total universe in October, a decrease of 13 basis points. 

Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Friday, “The improvement in the Kamakura troubled company index was driven both by surging stock prices and the fact that the calendar fourth quarter experiences fewer corporate defaults than other periods of the year. Of the riskiest 14 firms with legacy credit ratings, ranked by one month default risk, six firms have legacy ratings of A or higher. All of these six firms were non-U.S. financial institutions, raising some doubt about the timeliness of ratings in the overseas branches of legacy rating agencies. Six of the 14 firms are European banks potentially affected by the European sovereign debt crisis. Only 3 U.S. firms were included in the 14 riskiest firms with legacy ratings: General Maritime, Trailer Bridge, and Eastman Kodak.”

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