Fitch Ratings' assigns Recovery Ratings to securities and issues. These currently are published for most individual obligations of issuers with IDRs in the 'B' rating category and below and to structured finance securities that become distressed or have defaulted and are rated in the 'B' rating category and below. New issue structured finance securities typically are not assigned a Recovery Rating.
Recoveries gain in importance at lower rating levels because the likelihood of default in the near to medium term is often quite high and differences in recovery values have a more meaningful impact on loss expectations. Among the factors that affect recovery rates for an entity's security are the collateral, the seniority relative to other obligations in the capital structure, and the company's expected value in distress. For structured finance securities, the combination of tranche size, relative seniority, and structural features influence recovery values.
The Recovery Scale is based upon the expected relative recovery characteristics of an obligation upon the curing of a default, emergence from insolvency or following a liquidation or termination of the obligor or its associated collateral. As such, it is an ordinal scale and does not attempt to precisely predict a given level of recovery.
Recovery Ratings Scale
RR1 Outstanding recovery prospects given default.
RR2 Superior recovery prospects given default.
RR3 Good recovery prospects given default.
RR4 Average recovery prospects given default.
RR5 Below average recovery prospects given default.
RR6 Poor recovery prospects given default.
While recovery ratings are in relative terms, Fitch does employ recovery bands in its ratings approach.
RR1 rated securities have characteristics in line with securities historically recovering 91%-100% of current principal and related interest.
RR2 rated securities have characteristics in line with securities historically recovering 71%-90% of current principal and related interest.
RR3 rated securities have characteristics in line with securities historically recovering 51%-70% of principal and related interest.
RR4 rated securities have characteristics in line with securities historically recovering 31%-50% of current principal and related interest.
RR5 rated securities have characteristics in line with securities historically recovering 11%-30% of current principal and related interest.
RR6 rated securities have characteristics in line with securities historically recovering 0%-10% of current principal and related interest.
