May 7, 2013

How Much Do Bond Holders Get Back in a Bankruptcy? (on average)

When a company goes bankrupt the bond holders stand a good chance of getting back some of their principal investment.   Bonds are a form of debt and when the company goes into bankruptcy they are supposed to repay their debts as much as possible.   Stock holders on the other hand are considered owners of the company and are generally last in line to get any money and therefore usually get nothing or next to nothing.

But how much do bond holders usually get back?

I found the answer in this Standard and Poors report : U.S. Recovery Study: Recent Post-Bankruptcy Recovery Levels Disappoint Senior Unsecured Bondholders

They say : "Recoveries averaged 33% in 2010 and 2012 (through May)--significantly lower than the long-term average of 43%" 

Of course those are just the broad averages so it varies considerably.  But this gives us a general idea of the typical loses for bond holders in the case of bankruptcy.


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