The Determinants of Bank Loan Recovery Rates
39 Pages Posted: 29 Mar 2012
Date Written: March 27, 2012
Using Moody’s “Ultimate Recovery Database,” we estimate a model for bank loan recoveries using variables reflecting loan and borrower characteristics, industry and macroeconomic conditions, and several recovery process variables. We find that loan characteristics are more significant determinants of recovery rates than borrower characteristics prior to default. Industry and macroeconomic conditions are relevant, as are prepackaged bankruptcy arrangements. We examine whether a commonly used proxy for recovery rates, the 30-day post-default trading price of the loan, represents an efficient estimate of actual recoveries and find that such a proxy is biased and inefficient.
Keywords: Recovery rates, Ultimate recoveries, Loss given default, Credit risk
JEL Classification: G21, G28
Suggested Citation: Suggested Citation