Recovery rate
Asset-Backed Securities glossary · CLOs & Structured Credit
Definition
The percentage of a defaulted balance ultimately recovered through collection, charge-off recovery, or collateral disposition; complement of loss severity.
Recovery rate in plain English
When a borrower defaults (stops paying), the lender rarely loses every penny — they usually claw some back, maybe by repossessing and selling an asset or through collections. The recovery rate is the slice of that unpaid balance they eventually get back: recover $40 on a $100 default and the recovery rate is 40%. Its mirror image is loss severity, the part they never recover — here 60% — and the two always add up to 100%. Investors care because a pool of loans with high recovery rates is far less painful when borrowers go bad.
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