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Feb 8: Martin Fridson on plunging debt recovery rates
Part 2, February 8 2009: Martin Fridson, chief executive of Fridson Investment Advisors, which invests in corporate debt, says a higher default rate combined with structural changes in the debt markets such as changes to the bankruptcy code could push recovery rates to 15 cents on the dollar. The average recovery rates over the cycle tend to be in the range of 40 to 45 cents, with recovery at the low point usually at 25 cents. These could be lower this time around. Losses could also come to holders of bonds in banks, especially in banks that could fail or get taken over by the government.