Percentage of ‘Troubled’ Companies Surges to Open Year

A monthly study that tracks the percentage of companies with increased default risk showed its worst deterioration in several years this January, with a singular industry sector in the United States responsible for nine of the world’s 10 riskiest firms. The data arrive with a message that risk evaluators may need to up their collective game in 2016.

Kamakura Corporation’s Troubled Company Index, which tracks companies carrying a default probability that exceeds 1%, jumped 3.23% in one month through the end of January to settle at 13.71%. At one point mid-month, the index appeared to track as high as 16.83%, easily a record for the index in the last five years, according to Kamakura statistics.

“The Troubled Company Index has been steadily signaling increased risk since hitting an intra-year low last April,” said Kamakura President/CEO Martin Zorn. “One month into the New Year, we see continued weakening of global economic conditions; 21% of global GDP is covered by a central bank. In the current environment, risk managers must use multi-factor models with robust stress analysis. Single-factor or even three-factor models could fail analysts.”

Though matters outside of the United States are weighing heavily on the overall Kamakura reading, the 10 riskiest companies in January are all based domestically, with nine of them operating in the natural resources/energy sector. The only exception is Cumulus Media Inc., which carries the largest Kamakura Default Probability (54.6%) of the 36,000 public firms tracked. The company with the largest probability in December, concert festival-focused event promoter SFX Entertainment, filed for bankruptcy protection early this week.

 - Brian Shappell, CBA, CICP, NACM managing editor

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