Recovery amount
Encyclopedia
When a bond
or other financial derivative
defaults
, the recovery amount is the amount that the underlying company can afford to pay. This is usually a result of a liquidation of the company's assets and generally results in a lower amount than the par value.
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
or other financial derivative
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
defaults
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
, the recovery amount is the amount that the underlying company can afford to pay. This is usually a result of a liquidation of the company's assets and generally results in a lower amount than the par value.