Recovery Rates in the Israeli Corporate Bond Market 2008–2015

25/07/2017 |  Brodesky Ana
All Publications In Subject:
The Financial Markets and Financial Stability
 
Abstract
This paper examines default events in Israel's corporate bond market between 2008 and 2015. Using a sample of 106 distress events, the variation in expected recovery rates is analyzed. The value of distressed firms at the time of default was found to be mostly influenced by the financial conditions of peers in the industry and in the market. In particular, low liquidity and high average leverage ratios of other market participants had a negative effect on the anticipated recovery rate. Firm-specific characteristics were found to have negligible effect on expected recovery rates. Some of the firms appear in the dataset more than once, as in many cases the process of reorganization is not ultimately successful. Recovery rates at default, as opposed to emergence, were used because of limited data for emergence. For investors who mark their investments to market, once default occurs, the price at default is indeed their recovery estimate. Recovery rates are based on market prices, an advantage of the Israeli data, where bonds are typically traded on the stock exchange. The average recovery rate for the sample is 53 percent and the median is 50 percent; average recovery and default rates are shown to compare well with the experience in other countries.
 
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