Are Historically Based Default and Recovery Models in the High-Yield and Distressed Debt Markets Still Relevant in Today's Credit Environment?

Bank i Kredyt, No. 3, pp. 3-10, 2007

8 Pages Posted: 6 Sep 2007

See all articles by Edward I. Altman

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Abstract

This paper explores the impressive growth in the high-yield, leveraged loan and distressed debt markets and comments on the unusually low current default rates and high recoveries in these markets. The main reasons for these low default rates are the unprecedented growth in liquidity from non-traditional lenders, like hedge and private equity funds, as well as, again, from traditional lenders. We speculate on whether this excess liquidity will continue to dominate the market or will we observe a regression to the long-term mean and where default and recoveries will once again be based on firm-fundamental and more traditional demand/supply risk patterns.

Keywords: defaults, liquidity, credit risk, hedge funds

JEL Classification: G20, G21, G33

Suggested Citation

Altman, Edward I., Are Historically Based Default and Recovery Models in the High-Yield and Distressed Debt Markets Still Relevant in Today's Credit Environment?. Bank i Kredyt, No. 3, pp. 3-10, 2007, Available at SSRN: https://ssrn.com/abstract=1011689

Edward I. Altman (Contact Author)

New York University (NYU) - Salomon Center ( email )

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New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States

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