Kamakura Corporation reported Monday that the Kamakura troubled company index ended the month of November at 5.11%, an increase of 0.01% from October 28th. The index reflects the percentage of the Kamakura 34,000 public firm universe that has a 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 November, the percentage of the global corporate universe with default probabilities between 1% and 5% was 4.11%, down 0.01% from October; the percentage of the universe with default probabilities between 5% and 10% was 0.68%, unchanged; the percentage between 10% and 20% was 0.25%, up 0.02%; while the percentage of companies with default probabilities over 20% was 0.07%, which was unchanged from the previous month.
At 5.11%, the troubled company index remains at the 96th 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 November, five were from the United States, two from Brazil, and one each from Canada, Greece and Russia. The riskiest company on the list this month is RadioShack (NYSE:RSH), followed by Southern Pacific Resource CP (NYSE:STP). Other U.S. companies on the list were Forest Oil (NYSE:FST), Allied Nevada Gold (NYSEMKT:ANV), Quiksilver Inc. (NYSE:ZQK), and Quicksilver Resources (NYSE:KWK).
Martin Zorn, President and COO for Kamakura Corporation, said Monday "Quantitative easing, falling oil prices, negative interest rates and inflation expectations were among the headlines driving the markets, especially the fixed income market. Over the past several months we have seen oil producers become a greater percentage of the high yield index at the same time we have seen the default probabilities in the sector increase. We have also seen a geographical shift in the list of the ten riskiest rated firms with half being from the United States. Overall credit conditions appear very benign but the term structure of the index is signaling concern that should be heeded."
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 11.62%. 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 61 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 Viet Nam.
To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow
Kamakura CEO Dr. Donald van Deventer (www.twitter.com/dvandeventer),
Kamakura President Martin Zorn (www.twitter.com/riskmgrhi), and
Kamakura's official twitter account (www.twitter.com/KamakuraCo).
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.