Kamakura Troubled Company Index Increased 0.13% to 8.26% in July
Kamakura Corporation reported Monday that the Kamakura index of troubled public companies increased 0.13% to 8.26% in July. The index reflects the percentage of the Kamakura coverage universe that has a default probability over 1%. While the index was higher on July 31 than it was on June 30, the overall story for July points towards a more nuanced interpretation of the credit conditions during the month.
The index hit an intra-month high of 8.39% on July 24th, while the intra-month low of 7.41 was on July 9th. Compared to the prior month, the intra-month high fell 86 basis points, and the intra-month low fell 74 basis points. Therefore while the index closed the month slightly higher, the range of observed credit qualities improved somewhat throughout the month.
Consistent with the need to look carefully at the data, qualitative movements varied across the distribution of the index. In July, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.67%, an increase of 14 basis points. The percentage of companies with default probabilities between 5% and 10% was 1.12%, an increase of 1 basis point. The percentage of the universe with default probabilities between 10% and 20% was 0.37% of the universe, a decrease of 2 basis points, while the percentage of companies with default probabilities over 20% was unchanged at 0.10% of the total universe.
At 8.26%, the troubled company index is at the 61st percentile (with 100 being best all time credit quality) over the period from January, 1990 to the present. Last month, the index was in the 62nd percentile of its historical values. Yell Group, PLC continues to have the world’s highest one-month default risk among rated companies with a default probability of 31.22%, even as they announced a name change to HIBU at their Annual Meeting on July 26.
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Friday, “The news from Europe continued to take center stage only to be supplemented by the evolving investigation into the manipulation of LIBOR. While Yell Group announced a name change, they continued to have the highest default probability. Among the top ten riskiest firms they were joined by three companies from Italy, two from the US and one each from Brazil, Finland, Ireland and Japan. Lodgenet Interactive Corp., Fondiaria, and Sharp had the largest relative probability movements among this list. Each new release of macroeconomic data provides new insights that drive the market outlook and continue to vacillate between positive (better-than-expected corporate profits, home price reports, and GDP) and negative (continued uncertainty in Europe, mixed employment reports, and political gridlock).”
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