Loss-Given-Default (LGD)
Private Credit glossary · Underwriting & Credit Analysis
Definition
The expected percentage of exposure lost when a borrower defaults; 1 - recovery rate.
Loss-Given-Default (LGD) in plain English
When someone borrows money and can't pay it back (defaults), the lender rarely loses everything — they usually claw back part of it by seizing collateral or negotiating. Loss-Given-Default is simply the slice you DON'T get back, written as a percentage. If a lender recovers 60 cents on every dollar owed, the recovery rate is 60%, so LGD is 100% - 60% = 40%. Think of loaning a friend $100 backed by their bike: if you sell the bike for $60 when they flake, your loss-given-default is the missing $40, or 40%.
Also called: LGD
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