Recovery Rate Calculator
The formula
What the recovery rate tells you
The mirror of LGD and the single most time-sensitive number in credit work: what fraction of the claim you get back. Because bankruptcies are slow, nominal and present-value recoveries diverge more than most models allow.
Calculation: RR = recovered ÷ exposure (with PV timing check). Enter your inputs and every substitution is shown below the result.
Reading the result
Senior secured bonds historically recover 60–80 cents, subordinated debt 20–40, unsecured bank loans surprisingly well in the US (~70s) versus Europe's slower courts.
Rules of thumb: 1 − RR ≈ LGD; use downturn (low-RR) variants for stress
Limitations and best practice
Country and procedure matter enormously: US Chapter 11 mean recovery beats UK administration on average; the cycle widens or compresses everything.
This calculator gives an estimate based on standard formulas; it is not professional financial, medical, legal or engineering advice. Verify anything you plan to act on with a qualified professional and your own records.
Frequently asked questions
Do CDS pay nominal or PV recoveries?
Are recovery rates stable across the cycle?
Source & methodology
Moody's / LGDQ defaulted-bond studies; ISDA credit auction protocol.
How Recovery Rate works — and what your result really means
This page was written for one job: turning your own inputs into a defensible figure, with the working shown. Recovery Rate is the kind of number people argue about from memory. This page ends that argument with arithmetic you can watch happen: enter your figures, get Nominal recovery rate in real time, and see every substitution printed below.
Every investing metric in Investing & Markets is a bet about the future priced in today’s language. Recovery Rate translates that bet: RR = recovered ÷ exposure (with PV timing check). The translation is mechanical and reliable; the judgement is deciding whether the inputs you feed it are honest forecasts or wishful numbers.
The useful way to hold Recovery Rate is as a ratio with a story attached: RR = recovered ÷ exposure (with PV timing check) says how the parts combine, and the 155.1% figure above is simply that sentence written in numbers. Everything that follows unpacks one clause of the sentence at a time.
What makes a calculation page trustworthy is that its copy is derived from its own arithmetic: here nominal recovery rate = 155.1%, recomputed every time a field changes, and the sensitivity section ranks the inputs that move the result — Defaulted exposure first, at ≈11.1 % of the headline for a ten-percent error either way in that input. Read the sections in order and you will be able to reproduce every figure by hand.
Inside the Recovery Rate calculation: formula and every input
Here is the complete model this tool runs — RR = recovered ÷ exposure (with PV timing check) — with each input explained below. If a competitor’s page gives you a different answer from the same inputs, this is the text that settles which of you is right.
Total recovered ($) (example value 765,000) is a quantity rather than a category — precision here is cheap and worth having. If you are unsure what belongs in this field, look at the printed steps: the substitution shows exactly how the engine uses it.
Defaulted exposure ($) (example value 493,340) is a quantity rather than a category — precision here is cheap and worth having. This input feeds the formula directly; a defensible figure here is worth more than false precision anywhere else.
Years of workout (example value 3) is a numeric input whose unit is fixed by the label; a wrong unit is a wrong answer wearing a plausible disguise. Use the value as of today, not as of the last time you looked — time fields drift silently.
Recovery Rate on the example inputs: the complete substitution
Abstract formulas are hard to trust, so here is the complete substitution using the default inputs, written the way an examiner would want it. Starting figures: Total recovered ($), Defaulted exposure ($), Years of workout. The computed nominal recovery rate comes out at 155.1%, which the interpretation band labels “Time-discounted at 7%: 130.9%”.
- RR = $765,000 ÷ $493,340 = 155.1%
- PV of delayed recovery = $765,000 ÷ 1.07^2.5 = $645,955
LGD (nominal) — -55.1 %. This is the number experienced users quote when the headline alone would mislead.
LGD (PV-adjusted) — -30.9 %. This is the number experienced users quote when the headline alone would mislead.
Annualized "yield" of the workout — 19.18 %. This is the number experienced users quote when the headline alone would mislead.
Keep this worked example open while you enter your own figures: matching the shape of the substitution is the fastest way to spot a unit or convention mistake.
How far Recovery Rate can reasonably move
Read this table as the practical error bar on the headline figure. It answers the question people actually have after seeing a single number: how wrong could this be if the main input is off by ten or twenty percent?
| Defaulted exposure setting | Nominal recovery rate |
|---|---|
| 80 % of the example value | 193.8% |
| 90 % of the example value | 172.3% |
| example inputs | 155.1% |
| 110 % of the example value | 141.0% |
| 120 % of the example value | 129.2% |
Across 5 settings of Defaulted exposure, the result spans 129.2% to 193.8%. A decision that only works at one row of this table is a decision waiting for an input to move. Reproduce it in the form above by editing Defaulted exposure alone; the substitution steps will follow your figures exactly.
Where Recovery Rate is fragile — and where it is not
This list was computed for this specific engine just now: each numeric input was nudged ±10 % while every other field held its example value, and the nominal recovery rate was recalculated from scratch. It is the fastest honest answer to “what matters most in Recovery Rate?” — and it is specific to these defaults, because sensitivity moves with the starting point.
- Defaulted exposure +10 % → Recovery Rate = 141.0% · −10 % → 172.3% (the nominal recovery rate shifts ≈11.1 %)
- Total recovered +10 % → Recovery Rate = 170.6% · −10 % → 139.6% (the nominal recovery rate shifts ≈10.0 %)
Defaulted exposure is the dominant lever here: ten percent either way moves the result by about 11.1 %, from 141.0% to 172.3%. That is where a careless figure does the most damage, so check it against a source, and treat Total recovered as the second priority (≈10.0 % per ten percent). The rest of the inputs earn only a rounding-error of attention, and that asymmetry is the practical payoff of measuring rather than asserting.
Interpreting the Recovery Rate verdict
Nobody acts on a bare figure — they act on a figure with a comparison attached. The default case lands in the “Time-discounted at 7%: 130.9%” band, and bands are deliberately wide because real situations overlap. Before treating the band as fact, note its width: ten percent either way on Defaulted exposure already spans 141.0% to 172.3%. The practical reading rules: compare against your own history before comparing against other people; treat band boundaries as zones, not walls — one point on the wrong side of a threshold rarely changes a real outcome; and when a companion output contradicts the headline, believe the pair.
Where Recovery Rate sits next to similar measures: this tool answers “how much is the Recovery Rate”, while the related calculators answer “what do I do about it”. Reading the result alone tends to over-weight a single snapshot; pairing it with the companion tools above turns the number into a decision.
How people get Recovery Rate wrong
Country and procedure matter enormously: US Chapter 11 mean recovery beats UK administration on average; the cycle widens or compresses everything. This calculator gives an estimate based on standard formulas; it is not professional financial, medical, legal or engineering advice. Verify anything you plan to act on with a qualified professional and your own records.
Chasing precision in Defaulted exposure ($) while Total recovered ($) is still a guess. The sensitivity ranking above shows exactly where the accuracy budget should go.
One mistake is specific to this engine: assuming every input matters equally. The computation above shows Defaulted exposure dominating — a careful figure there beats false precision everywhere else.
Another is comparing across contexts: a Recovery Rate computed with one set of conventions should never be lined up against a figure computed with another. Check the inputs behind both before ranking them.
Recovery Rate verification checklist
- Re-run the calculation with a ±10 % stress on the two most sensitive inputs.
- Compare the output against one published benchmark or a colleague’s independent estimate.
- Check Defaulted exposure before anything else: it is the measured dominant input, ≈11.1 % of Recovery Rate per ten percent.
- Compare the result with one independent method or published benchmark.
- Recompute once with the dominant input deliberately set low, and see whether the decision changes.
- Repeat the ±10 % test on the inputs that matter and see whether the decision — not just the number — still holds.
Five steps from raw inputs to a figure you can defend
The tool does the arithmetic; the routine below is what makes the arithmetic trustworthy. Five steps, a minute total — and afterwards you will know not just what the number is, but which assumption produced it.
Step 1 — one document, one pass. Open the statement, label or record that holds total recovered ($), defaulted exposure ($), years of workout and transcribe straight into the form. Transcription from a single source removes the mismatch errors that appear when figures are assembled from three different places. Numbers are cheap to produce and expensive to retract; the extra minute is the cheapest insurance available.
Step 2 — enter the conservative case first. Resist the flattering scenario. Type the inputs you would defend in front of a sceptical reader, read the Nominal recovery rate (155.1% for the example values), and note the verdict band. The test of a good estimate is not that it feels right but that it changes what you do.
Step 3 — play with the inputs on purpose. Ten percent up, ten percent down, one field at a time. Within a few minutes you will know this calculation better than most people who quote its results. One decimal place more than your data supports is one decimal place of fiction.
Step 4 — compute a corridor, not a point. Three runs — worst, likely, best — turn Recovery Rate from a snapshot into a range. Plan against the pessimistic end and treat the optimistic end as the upside story. Precision is a promise you make about your data; make sure your inputs can keep it.
Step 5 — schedule the next run. In Investing & Markets the inputs drift quietly. Put a reminder a quarter out, re-enter the same fields, and read the change rather than the level. Most surprises in numbers are surprises about inputs, not about formulas.
Who actually uses Recovery Rate — and when
Most Fixed Income disagreements are arithmetic disagreements in disguise. When Nominal recovery rate of 155.1% sits on the table with its working shown, the conversation stops being about who sounds more confident and starts being about which input is wrong. A figure with a date beside it becomes evidence; without one it stays an anecdote.
Used properly this is a five-minute filter that saves weeks. Compute Recovery Rate, reject what fails, and only then bring in the expensive analysis for the survivors. Note the assumption you are least sure about; that is where the real risk lives.
There is a personal-administration use people overlook: periodic self-checking. Recovery Rate quietly drifts as life changes — rates move, bodies change, costs compound — and re-running it a few times a year catches drift while correction is still cheap. Note the assumption you are least sure about; that is where the real risk lives.
People also ask about Recovery Rate
What affects Recovery Rate the most?
Measured on this engine, Defaulted exposure is the dominant lever: moving it ±10 % shifts the nominal recovery rate across 141.0% to 172.3% — about 11.1 % of the headline, with Total recovered next at ≈10.0 %. The ranked list in the sensitivity section is computed live, not asserted from a template.
Which matters more: total recovered or defaulted exposure?
By the numbers, Defaulted exposure: a ten-percent change in it moves the result ≈11.1 %, versus ≈10.0 % for Total recovered. Spend your measuring effort in that order — precision on the weaker lever buys almost nothing.
What is a typical Recovery Rate?
There is no honest universal average for Recovery Rate, but there is a reference point: the defaults on this page produce 155.1% (Time-discounted at 7%: 130.9%). Replace the inputs with your own and compare — that comparison is the useful meaning of “typical”.
How do I calculate Recovery Rate by hand?
Use the stated model — RR = recovered ÷ exposure (with PV timing check) — and substitute in the order the tool prints (it starts from RR = $765,000 ÷ $493,340 = 155.1%). On the example inputs the hand route lands on 155.1%, exactly what the calculator shows. A spreadsheet reproduces it in two or three cells; doing it once by hand is what makes the automated answer trustworthy.
What happens to Recovery Rate if defaulted exposure changes by 10 %?
Try it in the form above and the printed substitution will follow you; the pre-computed answer for the defaults is 141.0% to 172.3% across the ten-percent probe, i.e. ≈11.1 % sensitivity on the nominal recovery rate.
Is the Recovery Rate result of 155.1% good or bad?
Good and bad are comparisons, so the honest test is three questions: where does your own Recovery Rate sit against the 155.1% reference above, how far would a plausible input error move it (≈11.1 % per ten percent on Defaulted exposure), and what does the alternative option compute to?
How often should I check Recovery Rate?
Whenever an input changes by more than a few percent, and otherwise on the rhythm of your decisions — before a purchase, a review, a renewal. Recovery Rate is a snapshot, not a subscription; stale snapshots are the most common silent error in Investing & Markets planning.
Can I predict future returns with Recovery Rate?
No tool predicts; Recovery Rate computes implications. Use it to ask "if these inputs hold, what follows" — then stress the assumptions.
Do CDS pay nominal or PV recoveries?
Physical settlement delivers the bond at auction price (effectively PV); cash settlement uses final-recovery auctions — both embed the timing discount.
Are recovery rates stable across the cycle?
No — they are strongly pro-cyclical: assets fetch more when buyers have capital. Stress models use low-recovery scenarios precisely because recoveries fall when defaults rise.
Does this Recovery Rate tool store my numbers?
No. The entire calculation runs in your browser session; nothing entered above is transmitted or saved, which is the correct behaviour for sensitive Investing & Markets figures and the reason you can re-run this page as often as you like.
The vocabulary of Recovery Rate
- LGD (nominal)
- -55.1 % in the default Recovery Rate calculation — one of the secondary figures an experienced reader checks before trusting the primary number.
- LGD (PV-adjusted)
- -30.9 % on the example inputs — a companion figure printed beside the headline of Recovery Rate so that no result is read in isolation.
- Annualized "yield" of the workout
- 19.18 % in the default Recovery Rate calculation — one of the secondary figures an experienced reader checks before trusting the primary number.
- Nominal recovery rate
- The primary output of this tool: 155.1% for the default inputs, computed exactly from RR = recovered ÷ exposure (with PV timing check).
- Worked example
- Every substitution in order, from the example inputs to 155.1% — the audit trail for the headline figure.
- Verdict band
- The plain-language label — here “Time-discounted at 7%: 130.9%” — mapping the computed figure onto experience-based ranges for Investing & Markets.
- Sensitivity (±10 %)
- How far the Recovery Rate moves when a single input is nudged ten percent either way; the ranked list on this page is computed live from this engine.
The provenance of this Recovery Rate calculation
Everything above runs on one stated formula, applied without hidden coefficients: RR = recovered ÷ exposure (with PV timing check). Source of record: Moody's / LGDQ defaulted-bond studies; ISDA credit auction protocol. Where a professional version of this calculation differs, it differs in inputs and jurisdiction-specific coefficients, not in the algebra — which is why re-checking your inputs beats hunting for a second calculator.
Treat the output as a precise answer to the question you typed: exact arithmetic, transparent formula, published source, no hidden rounding. Nothing is smoothed, weighted or adjusted behind the scenes; where judgement enters, this page says so and names the input responsible.
Turning this Recovery Rate into a decision
Re-run the calculation with your own figures, stress the two most sensitive inputs by ±10 %, and only then act on the result.
The audience here is people who need one trustworthy number before their next decision. Everything you need to defend the result — formula, substitution, sensitivity, source — is printed above, so the only remaining variable is the honesty of your inputs.