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Summary

  • The Kamakura troubled company index decreased 0.22% to 4.36% from July 31.
  • The index measures the percentage of public firms that are "troubled," defined as the percent of firms with annualized 1 month default probabilities over 1%.
  • NII Holdings, Endeavour International, RadioShack, Molycorp, and Walter Energy are the U.S. firms ranked high on the default probability rankings.

Kamakura Corporation reported Tuesday that the Kamakura troubled company index ended the month of August at 4.36%, a decrease of 0.22% from July 31st. The index reflects the percentage of the Kamakura 34,000 public firm universe that has a 1-month default probability over 1.00%. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality.

As of the end of August, the percentage of the global corporate universe with default probabilities between 1% and 5% was 3.55%; the percentage of the universe with default probabilities between 5% and 10% was 0.54%; the percentage between 10% and 20% was 0.19%; while the percentage of companies with default probabilities over 20% was 0.08%. The index hit an intra-month high of 4.52% on August 8th, while the intra-month low of 3.95% was on August 4th.

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At 4.36%, the troubled company index is at the 99.66th percentile of historical credit quality (with 100 being best all time) over the period from January 1990 to the present. Among the ten riskiest firms in August, three were from the United States, two from Russia and one each from Australia, Brazil, Canada, Greece and Indonesia. Boart Longyear is traded on the Sydney Stock exchange but the company is based in Salt Lake City. All of the companies on this list have seen increases in their default probabilities over the past six months. NII Holdings (NASDAQ:NIHD) once again was the world's riskiest company with a one-year default probability of 56.61%. RadioShack (NYSE:RSH) and Endeavour International (NYSE:END) were the other U.S. companies on the riskiest firm ranking. The default probabilities for all ten of the riskiest companies have increased over the past six months

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Martin Zorn, President and COO for Kamakura Corporation, said Tuesday, "Although the troubled company index continues to appear perfect, trouble spots can be found by analyzing the default term structure as well as certain sectors. Mining and natural resource companies continue to be weak and vulnerable. This can be seen in the list of riskiest companies above as well as the ten riskiest companies in the high yield index below. At this point in the cycle the combination of leveraged companies in high-risk sectors should be carefully analyzed."

Molycorp (NYSE:MCP) and Walter Energy (NYSE:WLT) lead the default probability ranking for the high yield index.

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The Kamakura troubled company index measures the percentage of more than 34,000 public firms in 61 countries that have annualized 1-month default risk over one percent. The average index value since January 1990 is 11.69%. Since November 2010, the Kamakura index has used the annualized 1-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 62 countries currently covered by the index are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, Chile, China, Colombia, Cyprus, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Kamakura Corporation Reports Improvement In Corporate Credit Quality In August