 Modeling recovery rate for leveraged loansXiaowei Chen, Gang Wang and Xiangting Zhang Economic Modelling, 2019, vol. 81, issue C, 231-241 Abstract: Leveraged loan has become an import risk contributor to the wholesale portfolio of a financial institution and an accurate evaluation of the recovery rate of leveraged loans is crucial for risk-based decision making by banks. To achieve this, we utilize a simple two-stage model framework conditional on loan and its borrower's characteristics. Under this framework, three kinds of models and two combining mechanisms are studied by using a subset of leveraged loan data filtered from Moody's Ultimate Recovery Data (URD). The in-sample and out-of-sample results show that three-split model with parallel combining mechanism yields more accurate predictions of ultimate recovery rates for leveraged loans. It is shown that the percentage of debt that is junior relative to the issuance in the issuer's capital structure is the most important determinant of the leveraged loan recovery outcomes. Recovery rates for Leveraged loans and for non-leveraged-loan debts are also compared. Empirical studies show that they have different influential factors. Keywords: Credit risk; Ultimate recovery rate; Loss given default; Two-stage model; Leveraged loan (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:81:y:2019:i:c:p:231-241 DOI: 10.1016/j.econmod.2019.04.006 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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