§ 01
| 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 |
§ 02
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.
§ 03
Expected Loss = Probability of Default × (1 − Recovery Rate) × Exposure
§ 04
Look up a company with outstanding bonds. Check whether the debt is secured or unsecured. Higher seniority means better recovery if things go wrong.
§ 05
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?
§ 06
§ 07
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?
Five questions · AI feedback
Sit with the ideas.
A CCC-rated company has $1B in senior secured bonds and $500M in senior unsecured bonds. If it defaults with 50% total recovery, roughly how much do secured bondholders receive?
Why: