Definition of Recovery Rate
In case of a default, the amount is recovered through foreclosure or bankruptcy procedures, as a percentage of face value. This amount is recovery amount or is also termed as absorption rate. In simpler words; the amount of bad debt recovered is recovery rate.
Explanation of Recovery Rate
The recovery rate is determined by the type of instrument within the corporate capital structure. The seniority of the instrument and recovery rate is directly proportional to each other. The instrument that is senior in the capital structure will have a high recover rate.