Average recovery by seniority tier
| Seniority | Average Recovery | Priority |
|---|---|---|
| Senior Secured | 60–80% | First — backed by specific collateral |
| Senior Unsecured | 40–60% | Second — general claim on assets |
| Subordinated | 20–40% | Third — paid after senior claims |
| Equity | ~0% | Last — typically wiped out |
Liquidation versus restructuring recoveries
Recovery also depends on whether the company liquidates (sells assets piecemeal) or restructures (continues operating with reduced debt). Restructuring typically produces higher recoveries because going-concern value exceeds liquidation value.
Expected loss combines default, recovery, and exposure
Expected Loss = Probability of Default × (1 − Recovery Rate) × Exposure
Check whether a bond is secured
Look up a company with outstanding bonds. Check whether the debt is secured or unsecured. Higher seniority means better recovery if things go wrong.
What unsecured holders get after secured claims
A company defaults with $1B in senior secured debt and $500M in unsecured debt. Total asset value in liquidation is $800M. What do unsecured bondholders get?
Always check what ranks ahead of you
Why management recovery estimates run optimistic
You own a senior-secured bond in a company that just filed for Chapter 11. Management estimates recovery of 80¢ on the dollar. What's the disciplined position?
Check your understanding
Sit with the ideas.
A CCC-rated company has $1B in senior secured bonds and $500M in senior unsecured bonds. It defaults, and total recovered value is 50% of combined face (assume the full recovery pool flows down the priority waterfall). How much do secured bondholders receive?
Why: