Kamakura Reports Decline in Corporate Credit Quality in April

Kamakura Corporation reported Thursday that the Kamakura troubled company index ended the month of April at 7.99%, a jump of 0.56% since the end of March.  The index reflects the percentage of the Kamakura 31,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects deteriorating credit quality.  The index hit an intra-month high of 8.63% on April 15 in the wake of the tragedy at the Boston marathon.

As of April 30, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.41%. The percentage of the universe with default probabilities between 5% and 10% was 1.04%, while the percentage between 10% and 20% was 0.37%. The percentage of companies with default probabilities over 20% was 0.17%, up from 0.13% in March.

At 7.99%, the troubled company index is at the 61st percentile of historical credit quality (with 100 being best all time) over the period from January, 1990 to the present.  This represents a deterioration of a full 10 percentage points since March. Eurobank Ergasias SA, which is nearing state takeover in Greece, has the world’s highest one-month default risk among rated companies with an annualized default probability of 17.14%. Central European Distribution Corp. (CEDC), which had the highest default probability of any rated firm in the United States in March, declared bankruptcy on April 8.  Among the ten riskiest firms in April, eight were European firms with the other two from the United States and Brazil.

Martin Zorn, Chief Administrative Officer for Kamakura Corporation, said Thursday, “Europe continued to be the primary area of credit worries again this month, with on-going problems in the banking and telecommunications sectors.  Even among firms with moderate default probabilities, Allianz SE was the most widely traded corporate reference name in the credit default swap market last week, with Norske Skogindustrier ASA not far behind.  We expect the nervousness about credit conditions to heighten in the months ahead.”

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