Default recovery higher than in past recessions – Moody’s
Tuesday, July 27, 2010 8:14
Corporate defaults since the fourth quarter of 2008 show an average recovery rate of 50.9 percent, higher than the two previous recessions, Moody’s Investors Service said on Monday.
Moody’s report suggests money managers have been able to recover some of their investment at a higher rate than previously expected, due in part to a large number of distressed debt exchanges.
However, the study of 57-non-financial firms warned of risks that the rate of recovery could fall due to the high number of firms in bankruptcy.
Moody’s review of non-financial companies that emerged from default between the fourth quarter of 2008 and the second quarter of 2010 shows an average firm-wide recovery rate of 50.9 percent.
That compared with 54.7 percent during the more than two decades going back to 1988, and mid-40 percent recoveries during the previous two downturns in 1990-1991 and 2001-2002, the rating company said in a report.
“Recoveries could see further pressure due to the large number of companies still in bankruptcy and the potential for subsequent defaults by companies that had distressed exchanges,” the report said.
Moody’s also noted that the higher-than-expected recovery rate in the current downturn was due in part to a significant percentage of distressed exchanges, which have a higher recovery rate than regular or pre-packaged bankruptcies.
For the 14 companies that defaulted via distressed exchange, investor recoveries averaged 70.9 percent, which skewed overall recoveries higher, Moody’s said.
Average firm-wide recoveries for the 20 pre-packaged and 23 regular bankruptcies were 45.6 percent and 41.2 percent, respectively.
