Loan investors brace for lower recoveries
Buy-siders expect to recoup up to 30 percentage points less if borrowers default
Leveraged loan investors are expecting to recoup less capital when companies default, after more than a decade of low rates eroded creditor protections in loan documents.
The average amount recouped by investors if a lender defaulted – known as the recovery rate – has historically been around 65–70% of a loan’s principal in the US and 75–80% in Europe. Now, participants in both markets are expecting the figure to be as much as 30 percentage points lower.
Investors say that lax lending
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