A company goes bankrupt with $60 million in assets (market value at time of dissolution). It...

Transcribed Image Text:

A company goes bankrupt with $60 million in assets (market value at time of dissolution). It also has $100 million in outstanding bonds in 2 classes: $50 million in senior secured bonds, and $50 junior subordinated bonds. In theory, what will be the recovery rates of these bonds? What might cause the actual recovery rate on the junior bonds to be higher? (This second part is hard. We may need a Piazza discussion.) A company goes bankrupt with $60 million in assets (market value at time of dissolution). It also has $100 million in outstanding bonds in 2 classes: $50 million in senior secured bonds, and $50 junior subordinated bonds. In theory, what will be the recovery rates of these bonds? What might cause the actual recovery rate on the junior bonds to be higher? (This second part is hard. We may need a Piazza discussion.)

Answer rating: 100% (QA)

In a bankruptcy scenario the recovery rate of a bond represents the percentage of the bonds face val... View the full answer