Press Release

Kamakura: Worldwide Corporate Credit
Quality Dips Slightly Again in September
Kamakura Troubled Company Index Falls to 67th Percentile

NEW YORK, October 1, 2018: The Kamakura Troubled Company Index ended September at 9.31%, an increase of 0.10% from the prior month. The index reflects the percentage of 39,000 public firms that have a default probability of over 1%. An increase in the index reflects declining credit quality, while a decrease reflects improving credit quality.

At the close of September, the percentage of companies with a default probability between 1% and 5% was 7.65%—an increase of 0.13% over the previous month. The percentage with a default probability between 5% and 10% was 1.15%, a decrease of 0.05%. Those with a default probability between 10% and 20% amounted to 0.41% of the total, up 0.01%, and those with a default probability of over 20% amounted to 0.10%, up 0.01% from a month earlier. Volatility remained low, with the index ranging from 8.93% on September 21 to 9.88% on September 6. For the year, the index has ranged from 7.00% on January 15 to 15.19% on February 8.

At 9.31%, the troubled company index now sits at the 67th percentile of historical credit quality as measured since 1990. Among the 10 riskiest-rated firms listed in September, six are in the United States, with one each in Australia, Great Britain, Hong Kong, and the Netherlands. Iconix Brand Group, Inc. (ICON: NASDAQ) remained the riskiest global company, with a one-year Kamakura Default Probability (KDP) of 37.71%. The firm posting the largest one-month increase in the one-year KDP was Ultra Petroleum (UPL: NASDAQ), up 13.33 basis points. This company has seen high levels of volatility in its stock. During the month, it was in talks with lenders to modify its term loan agreement. No resolution was reached, so the firm will need to meet the terms of its current agreement.

Also in September, three companies in Kamakura’s coverage universe experienced default. Two were from China and one from Singapore.

The Kamakura expected cumulative default curve for all rated companies worldwide narrowed, with the one-year default probability increasing by 0.10% to 0.86% and the 10-year probability decreasing by 0.12% to 12.65%.

Commentary By Martin Zorn,
President and Chief Operating Officer, Kamakura Corporation

Short-term default probabilities remain benign and defaults remain very low and concentrated in a few industries on a global basis. Volatility in our default probabilities continues to drop after a spike earlier this year. The gap in the expected cumulative default rate between 1 and 10 years remains high.

I think everyone agrees that we are late in the current cycle. It has been a long cycle, with lower than normal growth combined with unconventional monetary policy, resulting in very low nominal and real interest rates. Household and business balance sheets remain in relatively good shape; however, we have seen continued leveraging of public sector balance sheets at almost all levels. In the past few months, I have been thinking about what will trigger a turn in the cycle. I’m also wondering how governments and central banks will react. Will their responses be different from the last time, given the different political and economic conditions they face?

The suspects for triggering the end of the cycle are many, including interest rate increases that could choke off growth or political or economic events at home or around the world. What impact will the next election have? Will tariffs begin to hurt consumers and businesses alike?

We do not know what will cause the shift, but we should be looking more closely at warning signs at this stage of the cycle than we did earlier. In past cycles, we have seen the spread in short-term and longer-term default probabilities narrow quite dramatically and quickly. We know that longer- term default probabilities are driven by leverage and macroeconomic factors and differ by sector, whereas shorter- term default probabilities are primarily driven by financial performance and market factors. Portfolio managers should carefully monitor the spread in the cumulative expected default curves now, especially at the sector level, to obtain advance warning of change from their performance indicators. Late-cycle portfolio management poses unique challenges, and the number-one danger is complacency!

About the Troubled Company Index
The Kamakura troubled company index measures the percentage of 39,000 public firms in 68 countries that have an annualized one- month default risk of over one percent. The average index value since January, 1990 is 14.43%. Since November, 2015, the Kamakura index has used the annualized one-month default probability produced by the KRIS version 6.0 Jarrow-Chava reduced form default probability model, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors.

The version 6.0 model was estimated over the period from 1990 to May 2014 and includes the insights of the entirety of the recent credit crisis. The 69 countries currently covered by the index are: Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Belize, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, Nigeria, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the UK, the U.S., and Vietnam.

To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow:

Kamakura CEO Dr. Donald van Deventer (
Kamakura President Martin Zorn ( and
Kamakura’s official twitter account (

About Kamakura Corporation

Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing, and software. Kamakura was recognized as a category leader in the Chartis Report,Technology Solutions for Credit Risk 2.0 2018. Kamakura was named to the World Finance 100 by the editor and readers of World Finance magazine in 2017, 2016 and 2012. In 2010, Kamakura was the only vendor to win two Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 10.0.3, is the first enterprise risk management system for users focused on credit risk, asset and liability management, market risk, stress testing, liquidity risk, counterparty credit risk, and capital allocation from a single software solution. The KRIS public firm default service was launched in 2002. The KRIS sovereign default service, the world’s first, was launched in 2008, and the KRIS non-public firm default service was offered beginning in 2011. Kamakura added its U.S. Bank default probability service in 2014.

Kamakura has served more than 330 clients with assets ranging in size from $1.5 billion to $3.0 trillion. Its risk management products are currently used in 47 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, Ukraine, South Africa, Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam, and many other countries in Asia, Europe and the Middle East.

To follow risk commentary by Kamakura on a daily basis, please follow:

Kamakura CEO Dr. Donald van Deventer (
Kamakura President Martin Zorn ( and
Kamakura’s official twitter account (

For more information, please contact:
Kamakura Corporation
2222 Kalakaua Avenue, Suite 1400, Honolulu, Hawaii 96815
Telephone: 1-808-791-9888
Facsimile: 1-808-791-9898
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