carib
rerum cognoscere causas
DB paper on Yield to Recovery (YTR)
The simplest way, also the most useful way, of using this measure is to compare YTR for all bonds with an assumption of restructuring time and recovery rate. The following graph shows the yield to restructuring assuming restructuring in 3 years with a 25% notional recovery (75% haircut on the total claims), and no cutoff on PDI accumulations. Under this scenario, and if we further assume the same recovery between Venezuela and PDVSA, the PDVSA bonds appear significantly more attractive than Republic bonds overall, with the PDVSA 21s and 35s looking the cheapest while the Venezuela 34s and 18Ns being among the most expensive.
Alternative scenarios, with different recovery and time of restructuring, can be looked at and see whether the results shift. The second graph shows the results of restructuring in 4 years with 35%. As we can see, while the level of yields to restructuring have collectively shifted, the RV relationships are mostly kept. This is because, among other factors, current market prices are in favor of the low coupon bonds - excessively so in our view
The simplest way, also the most useful way, of using this measure is to compare YTR for all bonds with an assumption of restructuring time and recovery rate. The following graph shows the yield to restructuring assuming restructuring in 3 years with a 25% notional recovery (75% haircut on the total claims), and no cutoff on PDI accumulations. Under this scenario, and if we further assume the same recovery between Venezuela and PDVSA, the PDVSA bonds appear significantly more attractive than Republic bonds overall, with the PDVSA 21s and 35s looking the cheapest while the Venezuela 34s and 18Ns being among the most expensive.
Alternative scenarios, with different recovery and time of restructuring, can be looked at and see whether the results shift. The second graph shows the results of restructuring in 4 years with 35%. As we can see, while the level of yields to restructuring have collectively shifted, the RV relationships are mostly kept. This is because, among other factors, current market prices are in favor of the low coupon bonds - excessively so in our view
