Reply #28: Bondholders "Lucky" to Recover 10% in Defaults [View All]

[Demeter]

http://www.nakedcapitalism.com/2008/04/bondholders-lucky-to-recover-10-in.html

Bloomberg reports that the rating agency Fitch predicts that recoveries on corporate bonds that default will be far lower than in previous downturns, due to the deterioration in lending standards. The estimate is grim;

Rather than receiving the historical average recovery of 42 cents on the dollar in a default, owners of a third of high- yield, high-risk bonds rated B+ or lower may get no more than 10 cents, according to New York-based Fitch Ratings. About 22 percent are likely to get 11 cents to 30 cents.


Note that there are, understandably, forecasts as to how bad the defaults will get:

Moody's anticipates defaults will quadruple to 5.9 percent in 12 months. That assumes a ``mild'' recession. Judging by the amount of distressed debt, investors expect an 8 percent default rate, said Martin Fridson, head of high-yield research firm FridsonVision LLC in New York.