Recovery Rate
Corporate Credit Analysis glossary · Distressed Debt & Restructuring
Definition
The percentage of a defaulted claim's face value that is ultimately recovered; equals 1 - LGD. Senior secured corporate bonds historically average ~60-70% recovery, senior unsecured ~40%, subordinated ~20-25%.
Recovery Rate in plain English
When a company can't pay back money it borrowed, lenders rarely lose everything — they usually claw back some of it by seizing assets or selling off what's left. The recovery rate is simply how many cents on the dollar they get back: recover $60 on a $100 loan and the recovery rate is 60%. It's the mirror image of loss, so recovery rate = 1 - LGD (loss given default). Your spot in line matters hugely — lenders backed by specific collateral like buildings ('senior secured') typically get back ~60-70%, plain unsecured lenders ~40%, and those at the very back of the queue ('subordinated') only ~20-25%.
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