Fitch: Capital Structure Developments Key Driver of U.S. Recovery Rating Changes.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- A new study examining the distribution of Fitch's Recovery Ratings in their first full year after launch has revealed that the most common driver of Recovery Rating changes has been changes in the amount of secured debt in issuer capital structures, affecting in particular Recovery Ratings on senior unsecured bonds. Enterprise value considerations also resulted in Recovery Rating changes but to a lesser degree than capital structure dynamics. Approximately 60% of the Recovery Rating changes over the August 2005-September 2006 period occurred among unsecured bond issues where downgrades slightly exceeded upgrades. In most cases, this was a product of the trend toward increased secured borrowing, which has been facilitated by the benign credit environment and strong liquidity in the leveraged loan market. Other seniority categories experienced modest Recovery Rating changes. 'Similar to Issuer Default Ratings (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ), Fitch's Recovery Ratings are not static and will change as recovery prospects evolve along with market conditions and issuer fundamentals,' said William May For other persons named William May, see William May (disambiguation). William May (or Mey(e)) (died in 1560), English divine was the brother of John May, bishop of Carlisle. , Senior Director, Fitch Credit Market Research. 'While a change to an IDR signals a change in the likelihood that a particular issuer will default on its debt obligations, the factors that influence this will not affect recovery prospects in precisely the same way; therefore, Recovery Ratings will not move lockstep lock·step n. 1. A way of marching in which the marchers follow each other as closely as possible. 2. A standardized procedure that is closely, often mindlessly followed. Noun 1. with IDRs.' The new study highlights how U.S. Recovery Ratings vary considerably depending on an issue's position in the capital structure, from the relatively strong recovery prospects on secured debt to expectations for severe losses on preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. . In addition to the variation across the capital structure, there is significant dispersion within each seniority type. Within a given level of default risk, recovery risk can also vary widely for both secured and unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. . This study also shows that 'investors incorporating only a default risk constraint in their credit decision process would be accepting a good deal of uncertainty in terms of possible recovery values in the event of default,' according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Mariarosa Verde, Managing Director, Fitch Credit Market Research. 'Fitch's Recovery Ratings facilitate relative value analysis and add significant transparency to the rating process.' Fitch introduced Recovery Ratings in August 2005, creating a new rating framework that separates the two primary components of credit risk: default risk and recovery risk. Fitch's assignment of Recovery Ratings to corporate finance issuers covers approximately 1,800 individual issues totaling more than $500 billion in debt from more than 250 issuers globally with an IDR of 'B+' or below. The full report 'Recovery Ratings Reveal Diverse Expectations for Loss in the Event of Default' can be found on the Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. web site at www.fitchratings.com by clicking either the 'Credit Market Research' or 'Recovery Ratings' tab. This is the first in a series of reports analyzing the performance of Fitch Recovery Ratings. The study examines Fitch's current Recovery Ratings, differences in their distribution, and upgrade and downgrade activity based on position in the capital structure, industry, issuer risk and geography. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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