Recovery Rate
The percentage of face value that creditors receive after a default or restructuring. Senior secured typically recovers 70-90%, senior unsecured 40-60%, subordinated 10-30%.
Why it matters
Expected loss = probability of default \u00d7 (1 \u2212 recovery rate). Even if default is likely, high recovery can make a bond attractive. Recovery analysis is what separates credit investing from equity \u2014 you're not asking "will this company thrive?" but "will I get my money back?"
How to read it
Historical averages: First lien secured = 70\u201390% recovery. Senior unsecured = 40\u201360%. Subordinated = 10\u201330%. These vary dramatically by industry \u2014 asset-heavy businesses (real estate, manufacturing) tend to recover more than asset-light ones (services, tech). Recovery also depends on where you bought: a bond purchased at 60 cents that recovers 50 cents is a loss, but one purchased at 30 cents that recovers 50 is a win.
Lessons that use this term
Related terms
10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods
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