Companies' Risk of Bankruptcy - Audit Integrity

On the heels of Moody’s publishing a list of “bottom rung” companies most likely to default, Audit Integrity ups the ante with the preliminary findings of a new quantitative model designed to identify large companies most at risk of bankruptcy.

Chairman Jim Kaplan says their approach is to “combine both the power of static (accounting-based) and hazard (market-based) models. This approach allows for dynamic adjusting for potential bankruptcy between financial reporting periods.”

Our predictive bankruptcy measures will not be a substitute for Going Concern disclosures, but should be a leading indicator of these events.

“We are still finalizing and testing this new model, but I thought you would be interested in a preliminary list of companies at risk, ” he writes in his latest Chairman’s Corner. “The list below is representative of companies that fall within the lowest decile of all companies modeled by Audit Integrity for bankruptcy.”

Comments

[Larry House]

Thanks. Useful info. In the midst of all this euphoria, many still expect the junk bond default rate to hit 12 to 15 percent. Not exactly a strong vote of confidence for our economy.

2009 Apr 17 01:59 PM

[Lazaris]

Every one is talking about the "legacy costs" of GM retirees. Don't forget that GM has been building vehicles in the US for 100 years, and the "foreign transplants" have only been here for less than 20, therefore they have very few retirees. This will "flip flop" in the next 5-10 years as GM retirees die off, and are replaced with much younger workers, and the transplants start to get retirees.
Is the idea of just taking away the health care and pensions of GM retirees, so that they will die off all the sooner and GM will become more profitable faster? Gm retirees are dieing off everyday. GM will be hugely profitable in the coming years with the new workforce making just $14.00 per hour.

2009 Apr 17 02:33 PM

[Free2Speak]

Gm I get. However, saying Ford will go bankrupt, given their cash position, an improving market, improving quality,etc., just doesn't make sense. Also, analyst are guessing at only 13M cars sold in US in 2011. That does not pass the common sense test. Pre recession, we were at 16M and past recessions have seen a sharp rebound in car sales once the job market began to recover, which will almost certainly happen before 2011. Ford will survive.

2009 Apr 17 05:00 PM

[Roger Knights]

"The Dirty Decile"?

2009 Apr 18 07:51 AM

[satyr]

Moody's has been a day late and a dollar short for longer than I can remember. This list would have been useful a year or two ago, before many of these companies showed real signs of distress. Now it serves no purpose other than for Moody's to cover their arses.

What is worse is that a number of these companies have already taken adequate measures to restructure debt and improve liquidity. I can point to at least a few that have no major debt maturies coming in the next 24 months. So, how on earth would they have a 90%, or even 10% chance of going bankrupt this year?

The proof of the pudding is in the eating. Come 2010, if 90% of these companies has not gone BK, what will Moody's say? What if it is under 50%?

2009 Apr 18 02:10 PM