LGD (Loss Given Default)
Corporate Credit Analysis glossary · Credit Metrics & Debt Schedule Modeling
Definition
The percentage of exposure not recovered, conditional on default. LGD = 1 - Recovery Rate; LGD varies by seniority, collateral, and macroeconomic conditions at the time of default.
LGD (Loss Given Default) in plain English
If a borrower defaults, you rarely lose everything — you usually claw back some money by selling their assets or negotiating. LGD, or Loss Given Default, is the slice you don't get back, written as a percentage: if you recover 60 cents on the dollar, your LGD is 40%, following the simple rule LGD = 1 - Recovery Rate. Like a stolen car that's later found stripped for parts — you recover something, and LGD measures the rest that's gone for good. It's higher when your loan wasn't first in line or wasn't backed by solid collateral, and worse still when defaults happen during a bad economy and asset values are depressed.
Also called: Loss Given Default
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