Collateral Coverage Ratio
Corporate Credit Analysis glossary · Capital Structure & Debt Mechanics
Definition
The ratio of collateral value to secured debt outstanding; used in asset-based lending and as a recovery indicator in distressed credits.
Collateral Coverage Ratio in plain English
The collateral coverage ratio asks a simple question: if a lender had to grab and sell the assets backing a loan, would that cover what's still owed? You take the value of the collateral (the stuff pledged as backup) and divide it by the secured debt outstanding, so a ratio of 2.0 means the collateral is worth twice the loan. Picture pawning a $1,000 watch for a $400 loan — a coverage ratio of 2.5, meaning the lender is well protected. The higher the number, the more likely lenders get their money back if the borrower fails.
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