hard · Corporate Credit Analysis
An analyst is constructing a 'liquidation waterfall' for a company with $200 million in receivables (book value).
If the company is a speculative-grade distributor in a 'hot house' economic scenario, which recovery assumption is most appropriate?
- Use the full $200 million book value as receivables are 'hard' assets with guaranteed par recovery.
- Zero, as receivables are intangibles that vanish once a firm ceases to be a going concern.
- Apply a 40% - 60% advance rate to the book value to account for both credit deterioration and the costs of forced collection.
- Apply an 85% advance rate, consistent with standard ABL borrowing base conventions.
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