Distressed Exchanges Support Higher Recoveries, Moody's Says
Posted July 27, 2010 2:40PM PST

Distressed exchanges are helping investors recover higher returns on defaulted debt than they did in the two previous economic downturns, according to a Moody's Investors Service report.

Investors have recovered an average of 51 cents on the dollar on defaulted debt during the current economic downturn, which is four cents lower than the historical average of 55 cents, Moody's said. The recovery rate in the current cycle is better than the mid-40 cent range of recovery from the previous two downturns.

Moody's credited the stronger recovery rate to the high percentage of distressed exchanges completed by the first wave of companies to emerge from default in the Great Recession. Distressed exchanges typically yield higher recoveries than regular or pre-packaged bankruptcies, the report said.

Distressed exchanges occurred in 25% of the 57 defaults Moody's reviewed in its study. The report said recoveries would have been at record lows compared to previous recessions if distressed exchanges had not been utilized.

The report said recoveries by debt type were mostly in line with historical averages except for senior unsecured bonds, which averaged 31.2% recoveries, while the historical average for this type of debt was 40.3%.

Source: Press Release


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