Credit quality sees rapid deterioration in June

Hawaii-based risk technology vendor Kamakura Corporation today reported a steep increase in its monthly global index of troubled companies, signifying a decline in global credit quality.

Its index of troubled companies, which are defined as such when the default probability is in excess of 1%, rose sharply in June to 6.4% of corporations sampled across the globe - up from 5.7% in May and an increase from the record low of 5.5% in April.

In percentage terms, credit conditions in June were better than 91% of the monthly periods during the past 16 years, a decline from 97% last month. “The sharp deterioration in the index this month makes it likely that April was the peak of the current credit cycle,” said Warren Sherman, president and chief operating officer at Kamakura.

He added: “The number of companies with default probabilities between 1% and 5% rose sharply in June to 4.7% of the global public company universe, up 0.6%. Companies with default probabilities between 5% and 10% stayed unchanged at 0.9% of the universe. Companies with default probabilities between 10% and 20% also remained steady at 0.5% of the universe. The number of global companies with default probabilities of more than 20% increased 0.1% to 0.3% of the universe."

The index covers 16,000 public companies in 29 countries using the fourth generation version of Kamakura's advanced credit models.