medium · Corporate Credit Analysis fsa

If the company is a speculative-grade distributor in a 'hot house' economic scenario, which recovery assumption is most appropriate?

1. Use the full $200 million book value, since receivables are contractual 'hard' claims carrying guaranteed par recovery even in liquidation.
2. Zero, since receivables are pure intangibles that vanish entirely the moment the firm ceases to be a going concern.
3. Apply a 40% - 60% advance rate to the book value to account for both credit deterioration and the costs of forced collection.
4. Apply the standard 85% ABL advance rate, which is the convention for performing distributors, not distressed liquidations.

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