World-Wide Corporate Credit Conditions Improved 3 Points To 94th Percentile In January

by: Donald van Deventer

Kamakura Corporation reported Monday that the Kamakura troubled company index ended the month of January at 5.77%, a decrease of 0.30% from the prior month. The index reflects the percentage of the Kamakura 35,000 public firm universe that has an annualized 1 month default probability over 1.00%. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality. The index is now at the 94th percentile (with 100 being best) of world-wide corporate credit conditions from 1990 to the present.

As of the end of January, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.79%, down 0.32% from December. The percentage of the universe with default probabilities between 5% and 10% was 0.63%, up 0.01% from last month, while the percentage between 10% and 20% was 0.26%, up 0.02%. The percentage of companies with default probabilities over 20% was 0.09%, down 0.01%. The index hit an intra-month high of 5.89% on January 2nd, while the intra-month low of 5.26% was on January 21st. The magnitude of change in the index during the month was 63 basis points.

Among the ten riskiest firms in January, four were from China, four were European firms and two were from the United States.

Martin Zorn, President and COO for Kamakura Corporation, said Monday, "Overall credit conditions remain generally very good. Benign credit conditions create an environment where lenders tend to get complacent On January 30th the Office of the Comptroller of the Currency released their latest survey showing that banks' underwriting standards continue to ease. The trend in the list of riskiest firms over the past several months have shown a significant increase in the number of Chinese firms on the list as well as continued pressure on select European and emerging market banks. During the month of January, Spanish gaming company Codere S.A. defaulted for the second time in 4 months. Codere S.A. was listed by Kamakura Corporation as the world's riskiest rated firm last month."

The Kamakura troubled company index measures the percentage of more than 35,000 public firms in 56 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 11.80%. Since November, 2010, the Kamakura index has used the annualized one month default probability produced by the KRIS version 5.0 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 version 5.0 model was estimated over the period from 1990 to 2008, and includes the insights of the worst part of the recent credit crisis. The countries currently covered by the index are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, Chile, China, Colombia, Cyprus, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Kamakura Corporation has business relationships with a number of organizations mentioned in the article.