Kamakura Reports Decline in Corporate Credit Quality in January


Author: Martin Zorn
Location: New York
Date: 2013-02-05

Kamakura Corporation reported Friday that the Kamakura index of troubled public companies closed the month of January at 6.84%.  The index reflects the percentage of the Kamakura coverage universe that has a default probability over 1%. An increase in the index reflects deteriorating credit quality.  The index hit an intra-month high of 6.84% on January 31st, while the intra-month low of 6.15% was on January 22nd. Seasonal factors pushed the index up at the beginning of month while market conditions resulted in improvement in the index over the early weeks of the month.  Most of the deterioration in the index occurred towards the end of the month.

On January 31st, the percentage of the global corporate universe with default probabilities between 1% and 5% was 5.62%, the percentage of universe with default probabilities between 5% and 10% was 0.85%, while the percentage between 10% and 20% was 0.27% and the percentage of companies with default probabilities over 20% was 0.10%. This represents qualitative declines across the entire distribution of the index.

At 6.84%, the troubled company index is at the 81st percentile of historical credit quality (with 100 being best all time) over the period from January, 1990 to the present.  Rotech Healthcare Inc. had the world’s highest one-month default risk among rated companies with an annualized default probability of 17.22%. Among the top ten riskiest firms, there were three from Japan, two from the U.S. and Ireland, and one each from Brazil, Greece, and Russia.  All twenty five companies with the highest one-month default risk saw an increase in their KDP’s during the month. LodgeNet Interactive Group, which has been on the list of the top ten riskiest firms, filed for a “prepackaged Chapter 11” bankruptcy in January.

Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Monday, “Two days after the Commerce Department reported that U.S. economy shrank in the fourth quarter of 2012 the Labor Department announced that the economy produced jobs at a rapid rate.  Earlier today it was reported that Companies borrowed more money than in any other January on record.  All of the market information reconfirms the fact that default risks continues to be company specific and must be managed accordingly.”

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