Recovery Rate
Short definition
Recovery is how much of exposure the creditor gets back in cash after default. LGD is its complement. Seniority, collateral and the legal path set it.
Detailed explanation
Senior secured recovers more than junior unsecured. A fire sale and delay cut PV recovery.
The bank’s collateral haircut is a crude proxy for expected recovery. A universal “average recovery” does not describe your collateral pack.
Why it matters for the CFO
The same PD is expensive credit when recovery is low. Collateral quality is as much the price as the spread.
How it is calculated
LGD = 1 − tahsilat oranı; tahsilat ≈ teminat ve kıdem sonrası nakit / EAD
Variables in the formula
- Recovery: cash recovered by the creditor after default
How to read it
Nominal recovery ≠ PV recovery. Time and legal cost inflate LGD.
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Definitions are educational. They are not investment, credit or tax advice.