With just a slight increase from the month before, the Kamakura Corporation troubled company index ended August at 7.84%, reflecting the percentage of companies that have a default probability of more than 1%. An increase in the index indicates a reduction in credit quality while a decrease indicates an improvement in credit quality.
“Credit metrics continue to be stable and benign during August, with a decline in the number of observed defaults to a multimonth low,” said Martin Zorn, president and chief operating officer for Kamakura Corporation. “Overall government statistics show reductions in household debt burden, although U.S. credit card debt is near the peak levels reached in 2008. We continue to believe the biggest risk is the leveraged loan sector, once interest rates begin to rise.”
Among the 10 firms rated at most risk, seven were from the United States, two from Great Britain and one from Singapore. Two defaults occurred in the coverage group, the most prominent being Air Berlin. The riskiest rated firm is Ascena Retail Group, with a Kamakura default probability of 26.9%. For August, the percentage of companies with default probabilities between 1% and 5% was 6.5%; the percentage of those with default probabilities between 5% and 10% was .92%.
The Kamakura troubled company index measures the percentage of firms that have an annualized one-month default risk over 1% among a group of 39,000 public firms in 68 countries. Kamakura uses a large historical database with more than 2.2 million observations to produce a forward-looking statistical estimate of default risk 10 years into the future, with the troubled company index focusing on the short term.
– Adam Fusco, associate editor