Hawaii-based risk technology vendor Kamakura has reported a further drop in its monthly global index of troubled companies, signifying an improvement in global credit quality.Troubled companies, where probability of default is greater than 1%, made up 5.8% of the global public company universe in February this year, compared with 6.1% in January and 7.3% in December last year. The index has only been lower from March to May 2006 when it hit 5.4%, the lowest point for the past 17 years.
However, these figures do not reflect recent market turbulence. Warren Sherman, chief operating officer at Kamakura, said: “The continued improvement in credit quality in February may be short-lived, as it doesn't yet fully reflect the recent 400-point drop in the Dow Jones index nor the meltdown in the subprime mortgage lending market in the last two business days.” The index covers more than 17,000 public companies in 29 countries using Kamakura's credit models.
UK accountancy firm Ernst & Young has also predicted that the corporate default rate will remain low until mid-2008, as continuing liquidity has enabled companies to refinance their way out of recent difficulties.
Alan Bloom, head of corporate restructuring, said: “We are seeing companies being propped up that we would not imagine being propped up. People are rushing to rescue companies. The annual default rate on mezzanine debt would have exceeded 2.5% in the fourth quarter of 2006 - against an actual figure of just less than 2% - if companies had not benefited from easy refinancing or relaxed banking covenants.”
Topics: Ernst & Young
More on Credit Derivatives
Risk Awards 2015: BlueMountain founder is at the centre of a changing market
Innovative approach finds best CDS prices often come from the buy side
Risk Awards 2015: Strategic decisions made after the crisis paid off in 2014
Nearly 2.5% of single-name CDS market changed hands in trade last September
Sign up for Risk.net email alerts
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
Nominated for two technology awards
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.