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.

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Frequently Asked Questions

How variable are recovery rates across economic cycles?

What factors cause recovery rates to vary by industry?