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Lower recoveries likely on US corporate defaults during coronavirus pandemic
May 29, 2020 (6.39 mins)
David Keisman and Julia Chursin discuss why US corporate defaults during the pandemic are likely to produce bigger losses for investors. Erosion in credit quality, structure and covenants will suggest worse debt recoveries for first-lien bank debt in particular. Meanwhile, the prevalence of distressed debt exchanges will not be sufficient to stave off subsequent defaults if the downturn’s duration is protracted.​​
Recoveries will decline in a pandemic-driven default cycle
​​Our review of past recoveries shows that US companies that default because of the coronavirus pandemic will likely return less to investors than those that defaulted because of the 2008-09 recession, with prospects particularly poor for first-lien debt. We expect that more companies will complete distressed exchanges, and that many of those firms will later file for bankruptcy. Recoveries will be even worse in a prolonged downturn.​