Kamakura Reports Seventh Deterioration in Corporate Credit Quality in the Last Nine Months

Location: New York
Author: Martin Zorn
Date: Thursday, February 2, 2012

Kamakura Corporation reported Wednesday that the Kamakura index of troubled public companies declined, rising 0.77% to 7.27% in January. The index has deteriorated in seven of the last nine months.  The index hit an intra-month high of 8.74% on January 9 having risen from an intra-month low of 6.98% on January 2.  Seasonal factors drive part of the deterioration in the index during the month. 
At the 7.27% level, corporate credit quality is at the 74th percentile (with 100 being best all time credit quality) over the period from 1990 to the present. In December 2010, by contrast, the index was at the 99th percentile of credit quality and last month it was at the 86th percentile. 
Catalyst Paper, which announced that it would file for protection from creditors, surpassed Tokyo Electric Power Company as the firm with the highest default risk during the month.  Tokyo Electric Power Company had the world’s second highest one-month default risk among rated companies, with a default probability of 43.87%.

In January, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.84%, an increase of 36 basis points. The percentage of companies with default probabilities between 5% and 10% was 0.95%, an increase of 24 basis points. 

The percentage of the universe with default probabilities between 10% and 20% was 0.34% of the universe, an increase of 11 basis points, while the percentage of companies with default probabilities over 20% was 0.14% of the total universe in January, an increase of 6 basis points. 
Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Wednesday, “The deterioration in the Kamakura troubled company index was not only influenced by seasonal factors but continued a trend that we have seen for the last nine months.  The deterioration was evident in each of the default probability bands that we track and came despite a strong January in the equity markets. Of the ten riskiest firms with legacy ratings at the end of January, two each are from Canada, Great Britain, Japan and the US while one each are from Ireland and Italy.  Eight of the ten riskiest firms experienced increases in default probability over the past month. Of the top ten riskiest firms on last month’s list one, Eastman Kodak filed for bankruptcy protection and Catalyst paper announced the intent to do so.”

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