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Quantitative Finance · Glossaire

Qu'est-ce que « Covenant, seniority, recovery rate » ?

Aussi appelé : covenant · seniority · recovery rate

Definition 21.7 Markets II: Rates, FX and Credit · Chapitre 21 — Corporate Bonds

A covenant is a promise in a bond’s terms that restricts what the issuer may do (borrow more, pay dividends, sell assets, merge) or requires it to maintain some condition. Seniority is a claim’s rank in the order of payment in insolvency: secured before senior unsecured before subordinated before equity. The recovery rate is the share of a bond’s face value its holders receive after the issuer defaults.

Seniority and recovery on an illustrative default. A firm worth 600 at default owes 200 secured, 500 senior unsecured and 200 subordinated: the secured creditors are paid in full, the senior unsecured share the remaining 400, and the subordinated recover nothing. Schematic.
Figure 21.4. Seniority and recovery on an illustrative default. A firm worth 600 at default owes 200 secured, 500 senior unsecured and 200 subordinated: the secured creditors are paid in full, the senior unsecured share the remaining 400, and the subordinated recover nothing. Schematic.
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