Recovery Rates From Distressed Debt: Empirical Evidence From Chapter 11 Filings, International Litigation, and Recent Sovereign Debt Restructurings
IMF Working Papers, August 1, 2003
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- Recovery Rates From Distressed Debt: Empirical Evidence From Chapter 11 Filings, International Litigation, and Recent Sovereign Debt Restructurings
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Bibliographic details
- Authors: Manmohan Singh
- Published: August 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451857832.001
Summary
- On a credit rating-adjusted basis, spreads on U.S. high-yield debt have typically been regarded as a lower bound for emerging market debt.
- However, in the C-rated and defaulted segment, emerging market debt has traded at lower spreads than similarly rated U.S. high-yield debt.
- The lower spreads reflect the fact that the total returns from defaulted debt in the emerging markets have been significantly higher than returns from similarly rated high-yield defaulted debt under Chapter 11.
Key findings and analysis
- Comparative spread behavior:
- U.S. high-yield debt spreads are commonly treated as a benchmark lower bound for emerging market debt when adjusted for credit rating.
- Exception: C-rated and defaulted segment where emerging market debt traded at lower spreads than U.S. high-yield counterparts.
- Performance after default:
- Total returns from defaulted emerging market debt are significantly higher than total returns from similarly rated high-yield debt restructured under Chapter 11.
- Implication:
- Market pricing in the C-rated/defaulted segment reflects higher expected recovery or stronger realized recoveries for emerging market sovereign/defaulted issuers relative to U.S. corporate Chapter 11 restructurings.
Subjects and keywords
- Subjects: Asset and liability management; Bonds; Distressed assets; Emerging and frontier financial markets; Financial institutions; Financial markets; Financial sector policy and analysis; Securities markets; Sovereign debt restructuring.
- Keywords: asset class; Bonds; Chapter 11; debt; debt investor; Distressed assets; Distressed debt; EM debt; Emerging and frontier financial markets; emerging market; Europe; HY debt; HY issue; issue; Securities markets; Sovereign debt restructuring; Sovereign litigation; WP.