medium · Corporate Credit Analysis cap-structure
If an analyst uses a 'Consolidated' recovery model and ignores legal entity structure, they are most likely to:
- Wrongly assume that the Second-Lien debt is contractually junior to the Senior Unsecured notes.
- Correctly identify the fulcrum security in every scenario, since consolidation has no bearing on claim priority.
- Miss the impact of structural subordination on the Senior Unsecured Notes relative to the Second-Lien debt.
- Overstate the recoverable value of the First-Lien collateral pledged at the operating subsidiary level.
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