Recovery Rate
Recovery Rate is the value a creditor receives or is expected to receive after a default, restructuring or bankruptcy, expressed as a percentage of the creditor's allowed or affected claim.
Recovery measures value received relative to the claim
A 100% recovery means the creditor receives value equal to its allowed claim under the stated valuation assumptions.
A 40% recovery means $40 of value for each $100 of claim. That value does not have to be cash.
Priority drives recovery dispersion
A restructuring can give one secured class nearly full recovery while junior funded debt receives little or nothing.
Current 2026 disclosure statements show exactly that pattern, with different classes receiving materially different projected ranges under the same plan.
Plan recovery and liquidation recovery can diverge sharply
A going-concern reorganization may preserve operating value that would be lost in an asset-by-asset liquidation.
A creditor can therefore receive a materially higher recovery under a Chapter 11 plan than under the hypothetical Chapter 7 liquidation used for the best-interests test.
Equity recovery introduces valuation risk
If creditors receive stock, the disclosed recovery percentage depends on the assumed value of that equity.
The actual realized result can be higher or lower depending on post-emergence trading, operating performance and exit timing.
Recovery rate and purchase price determine distressed-debt return
Assume an investor buys a defaulted claim with $100 face value for $35.
The restructuring later delivers securities and cash worth $55.
The creditor's recovery rate on face claim is 55%.
The investor's gain relative to the $35 purchase price is $20, or about 57% before fees, taxes, financing cost and time value.
A lender that originally funded the debt at par experiences a 45% loss, while the distressed investor can earn a positive return from exactly the same 55% recovery.
That distinction is central to distressed investing. Recovery rate measures value relative to the claim; investment return measures value relative to the investor's actual cost basis and holding period.
Common mistakes
Treating estimated recovery as cash The consideration can include securities.
Comparing recovery percentages with different valuation dates Market conditions can change.
Ignoring claim priority A company-wide average hides class-by-class outcomes.
Example
A lender has a $100 million allowed claim and receives $20 million of cash plus new securities valued at $45 million on the plan's valuation assumptions. Estimated recovery is 65%. If the securities later trade down, realized recovery can be lower.
Example
A lender has a $100 million allowed claim and receives $20 million of cash plus new securities valued at $45 million on the plan's valuation assumptions. Estimated recovery is 65%. If the securities later trade down, realized recovery can be lower.
Professional note
Always ask whether the percentage is estimated plan recovery, liquidation recovery, market-implied recovery or realized cash recovery. They answer different questions.
Related terms
- Structural Subordination
Structural subordination is the priority disadvantage faced by a creditor of a parent or holding company when valuable assets and liabilities sit in subsidiaries that do not guarantee the parent debt.
- Distressed Debt Exchange
A distressed debt exchange is a debt restructuring in which a financially stressed issuer offers creditors new debt, securities, cash or a combination in place of existing obligations on terms intended to reduce, defer or otherwise alter the issuer financial burden and help avoid a conventional payment default or bankruptcy filing.
- Debt-for-Equity Swap
A debt-for-equity swap is a restructuring transaction in which a creditor exchanges or converts some or all of a debt claim into equity ownership in the borrower, reorganized company or another entity.
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