How variable are recovery rates across economic cycles?

Recovery rates are highly cyclical. During credit cycle peaks, recoveries on senior unsecured bonds average 50–60%; during troughs (2008, 2020), they can fall to 25–35%. Recovery rates are negatively correlated with default rates: when defaults spike, recoveries fall simultaneously.

What factors cause recovery rates to vary by industry?

Asset-intensive industries (utilities, real estate) have higher recoveries due to tangible collateral value. Service and technology companies have lower recoveries as intangibles and going-concern value dissipate rapidly in bankruptcy. Pre-packaged bankruptcies tend to recover faster and achieve higher creditor recoveries.

Distressed Debt Recovery Rate by Seniority

Estimate recovery rates for defaulted bonds by seniority: senior secured (65–80%), senior unsecured (40–55%), subordinated (25–35%), junior subordinated (10–20%) based on historical Moody's averages.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How It Works

Each component has a specific meaning:

Historical Moody's averages — The historical moody's averages recorded for the scenario being assessed.

Note: Interpret the distressed recovery rate result against the thresholds and context described above.

How to Use

Enter the historical Moody's averages for the scenario you are assessing. Estimate recovery rates for defaulted bonds by seniority: senior secured (65–80%), senior unsecured (40–55%), subordinated (25–35%), junior subordinated (10–20%) based on historical Moody's averages. Use the distressed recovery rate result to inform your calculation.

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