US-issued loans emerging from default in 2022 recovered less than loans emerging in 2021 and less than the long-term average, according to a recent report by S&P Global Ratings. Loans recovered 63.7% of their pre-default face amount during 2022’s first three quarters, versus 77.6% for those emerging in 2021, the report said.
For the 11-quarter period of 2020 through 2022’s third quarter, both loans and bonds experienced better recoveries post-default than their average for 2019, the report showed. Loan recoveries averaged 67.3% from 2020 through Q3 2022, compared with 65.6% in 2019. Bond recoveries from 2020-2022 logged in at 51.7%, compared with 45.5% in the year before the pandemic began, according to the report.
The S&P Global report revealed that the US defaulted loan recovery rate from 2020-2022 was below the 73.3% average recovery rate from 1990 through 2022. Meanwhile, bond recoveries in the 2020-2022 period were well above their 40.3% average recovery rate from 1990-2022. Looking back, since the Global Financial Crisis, loan recoveries have oscillated between beating and lagging their long-term average, while bond recoveries have exceeded their long-term average every year since 2012, accord to the report.
Not surprisingly, bond recoveries “tended to be higher” in years with relatively fewer defaults, the report said, explaining that “the conditions that support lower default rates also tend to support higher recoveries.” Similarly, S&P Global found that when financing conditions were easier and the average annual speculative-grade spread to Treasuries was lower, bond recovery rates were higher.
Highlighting the divergence in recoveries between loans and bonds, the report found that for the 1987-2022 period, 26% of defaulted term loans and revolvers recovered par or greater following their emergence, and 56% saw recoveries above 80. On the flip side, only 5% of bonds recovered over par, just 17% recovered more than 80, and 27% of defaulted bonds in the study recovered less than 10 cents on the dollar.
This article originally appeared on PitchBook News