Ultimate recovery rates displayed considerable cyclicality in 2009, in sync with the ebb and flow of liquidity, said an article published today by Standard & Poor's, titled "U.S. Recovery Study: Increased Defaults And Low Liquidity Depressed Recovery Rates In Early 2009 (Premium)."
"Preliminary data for 2009 suggest that the shock to liquidity from events such as the Lehman Brothers' bankruptcy in the fall of 2008 severely affected exit valuations of defaulted securities, as well as the values of nondefaulted securities," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Recoveries, which had experienced a golden age of extremely high rates during 2003-2007, dropped precipitously in 2009, in line with our expectations."
A particular instrument's position in the capital structure, its security and collateral, company-specific issues, and economic and credit market conditions are the main factors that influence a recovery rate.
By early 2009, recovery rates dropped to 39% for loans and revolving credit facilities and 34% for bonds (on a mean discounted basis in the first four months) from 74% and 51%, respectively, for all of 2008. The rebound in capital market sentiment boosted recovery rates later in the year, and by July 2009, recovery rates began to increase from these troughs.
One of the key distinguishing characteristics of these issuers that emerged from default in late 2008 and 2009 is the dominance of distressed exchanges, which accounted for a much greater share of emergences than what we historically have observed.
For more details, see the interview with Ms. Vazza, titled "For Bull And Bear Markets, What Are The Recovery Values Across The Capital Structure?," on CreditMatters TV at http://standardandpoors_media.infoble.com/38j4MwcxACV7ZJcFzdWCrDQ==/MyVideo.WMV.
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Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contact:
Diane Vazza, New York (1) 212-438-2760