Market Size and Investment Performance of Defaulted Bonds and Bank Loans: 1987-2001

Economic Notes by Banca Monte dei Paschi di Siena SpA, vol. 32, no. 2-2003, pp.
147176
Market Size and Investment Performance of

Defaulted Bonds and Bank Loans: 19872001
EDWARD I. ALTMAN JASON POMPEII*
The defaulted and distressed, public and private debt markets in the United
States swelled to a record $680 billion (face value) at the end of 2001. The
market value of this niche segment was approximately $400 billion.
Defaulted security investors enjoyed an excellent year on average, as
returns in 2001 were 17.5 per cent on bonds, 13.9 per cent on bank loans,
and 15.6 per cent combined defaulted public bonds and private bank loans.
The Altman-New York University Salomon Center Index of
Defaulted Bonds grew to over 200 individual issues and a face value of
$56.2 billion; the market value was only $11.8 billion. The market-toface value ratio of the Bond Index grew somewhat to 0.21 from 0.15 one
year ago, but remained at a relatively low figure. The face value of our
Defaulted Bank Loan Index also grew to $44.7 billion and the marketto-face value ratio remained quite low at 0.53.
The recovery rate on defaulted bonds (price just after default) was
very low at 25 cents on the dollar; likewise, the bank loan recovery
rate in 2001 was also relatively low at 55 cents on the dollar. With new
defaulted bonds rising in 2001 to a record $63.6 billion (default rate of
9.80 per cent) and the default outlook for 2002 high investment
opportunities should abound in the distressed debt market.
Indications are that distressed investors (both old and new) are
successfully raising funds because investor expectations are buoyant.
(J.E.L.: G21, G33).
1. Introduction
This report on the performance of defaulted bonds and bank loans
presents our annual update and analysis. For in-depth discussions of the
* Dr Altman is the Max L. Heine Professor of Finance and Vice Director of the NYU
Salomon Center, Leonard N. Stern School of Business. Mr Pompeii was a Research Associate at
the NYU Salomon Center and is now a rating analyst at FITCH Ratings, Inc. The assistance of
Pablo Arman, Sameer Chugh and Lourdes Tanglao of the NYU Salomon Center and the many
securities firms and distressed securities investors who provided us with price quotations and other
data is appreciated. Special thanks to Gabriella Petrucci, Sau Man Kam and Wilson Miranda of
Salomon Smith Barney for their data assistance.
# Banca Monte dei Paschi di Siena SpA, 2003. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
148 Economic Notes 2-2003: Review of Banking, Finance and Monetary Economics
supply and demand elements of defaulted and stressed securities, as well as

their performance and other attributes, see Altman (19932000), (1991),
(1993); Branch and Ray (1992); Altman and Eberhart (1994); Ward and
Griepentrog (1993); Gilson (1995); Hotchkiss and Mooradian (1998);
Reilly, Wright and Altman (1998); and Eberhart, Altman and Aggarwal
(1999). Defaulted bonds and bank loans performed very well during 2001,
reversing their relatively poor performance of the preceding several years.
Moreover, this asset class has attracted an increasing amount of new
capital as the supply of distressed and defaulted securities continued its
substantial growth over the past three years.
2. Monitoring Performance
The Altman-NYU Salomon Center Defaulted Bond Index (A-NYU
Index) was developed in 1990 for the purpose of monitoring and measuring the performance of defaulted debt securities.1 The sample period of our
Index begins in January 1987 and, as of 31 December 2001, includes 202
issues from 86 firms (Table 1). The Indexs market value is $11.8 billion
and its face value is $56.2 billion, more than double the $4.3 and $27.8
billion amounts of 2000 and almost triple the 1999 amounts of $4.1 and
Table 1: Size of the Altman-NYU Salomon Center Defaulted Bond Index (19862001)
Year end
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Number of
issues
Number of
firms
Face value
($ billions)
Market value
($ billions)
Market/face
ratio
30
53
91
111
173
207
231
151
93
50
39
37
36
83
129
202
10
18
34
35
68
80
90
77
35
27
28
26
30
60
72
86
1.7
5.7
5.2
8.7
18.7
19.6
21.7
11.8
6.3
5.0
5.3
5.9
5.5
16.3
27.8
56.2
0.5
4.2
2.7
3.4
5.1
6.1
11.1
5.8
3.3
2.3
2.4
2.7
1.4
4.1
4.3
11.8
0.29
0.74
0.52
0.39
0.27
0.31
0.51
0.49
0.52
0.46
0.45
0.46
0.25
0.25
0.15
0.21
1
This index, originally developed in Altmans Foothill Report (1990) is maintained and
published monthly at the NYU Salomon Center of the Leonard N. Stern School of Business. It is
available along with data and reports on high yield debt default rates and performance, from the
Center (212/998-0701 or 212/998-0709).
# Banca Monte dei Paschi di Siena SpA, 2003.
E. I. Altman - J. Pompeii: Market Size and Investment Performance of Defaulted Bonds 149
$16.3 billion. The number of bond issues in the Index increased substantially during 2001 and continues to approach the record levels set for the
Indexs size during the early 1990s. The size of our Index, as measured by
the face value of public defaulted bonds, is more than double the face value
of the Index during the early 1990s; yet, the market value of our Index is
only slightly higher than its highest measure previously observed in 1992.
Table 1 exhibits various measures of our Indexs size since its December
1986 inception. The variability in the number of issues, with a low of 30 in
1986 and a high of 231 in 1992, continues to be notable. Our expectation
that the huge new issue supply of non-investment grade debt in the years
199699 would result in a continued increase of default amounts during
subsequent years was again realized in 2001. Indeed, total bond defaults in
2001 were $63.6 billion more than double the record amount set during
2000. And, this total does not include the huge Enron and Pacific G&E
defaults; see our partner Annual Report, E. Altman and P. Arman, Defaults
and Returns in the High Yield Bond Market: Analysis Through 2001 and
Default Outlook, NYU Salomon Center Working Paper, #S-024 and
Salomon Smith Barney, January 2002.
We consider the ratio of the aggregate market value to face value of
the component securities that comprise our index (last column of Table 1)
to be an important measure of the defaulted bond markets current relative
health. This ratio has ranged, at year-end, from a maximum level of 0.74 in
1987 to a minimum level of 0.15 in 2000. While the market/face value ratio
has varied within a fairly narrow range of 0.300.50 during most years in
our 16-year sample period (19862001), abnormal returns for the Index
have resulted in a number of market/face value ratio observations well
outside of this range. In particular, a 38.0 per cent return for the Index
during 1987 increased the market/face ratio to 0.74, while the significant
negative returns of 1989, 1990, 1998 and 2000 pushed the market/face ratio
to under 0.30, especially in the last four years. During 2001, this ratio
increased to 0.21 from 0.15 in 2000. A positive 17.47 per cent return for the
Index in 2001 and the increase in the market/face ratio are consistent with
our continued belief in a reversion to the mean. This suggests that the
relatively low 2001 year-end market/face ratio of 0.21 is a indication of
continued future increases in this ratio and strong Index returns. An
analysis of the Indexs historical average market/face ratios to the price
levels of newly defaulted (40 per cent) and senior unsecured bonds (50 per
cent) of face value, is particularly interesting , even more so considering
that the majority of the bonds in our Index are senior in priority. For
2001, the weighted average recovery price of defaulted bond issues was
approximately 25.4 per cent of face value (including FINOVA) and 21.1
per cent (without FINOVA), which is quite similar to the end-of-year
Indexs market/face ratio of 0.21. Again, these current market/face value
ratios are all significantly below average levels.
The A-NYU Index includes the securities of firms at various stages of

reorganization, either in bankruptcy or restructuring. We calculate the
returns for the Index using data compiled from just after default to the
point when the bankrupt firm emerges from Chapter 11, is liquidated, or
until the default is cured or resolved through an exchange. The securities
of distressed restructuring companies are also included in the Index. The
Index includes bond issues of all seniorities, from senior-secured to juniorunsecured debt. A study by Altman and Eberhart (1994), updated by
Standard & Poors (Brand and Behar, 1998), measures the performance
of defaulted debt from the time of original issuance through default and
then to emergence from bankruptcy. These studies conclude that the
seniority of the issue is an extremely important determinant of the performance of defaulted securities over specific periods, whether from issuance to
emergence or from default to emergence. The A-NYU Index does not
include convertible or international company issues, nor does it include
distressed, but not defaulted, securities.
3. 2001 Performance
The Altman-NYU Salomon Center Index of Defaulted Bonds
reversed its poor performance in 2000, increasing 17.47 per cent in 2001,
marking the Indexs fifth highest annual return in our 15-year period
(Table 2). The Index experienced positive returns in all but the third
quarter in 2001, with a significant negative return in September preventing
the Index from achieving positive returns in all four quarters of a year for
the first time since 1993. In particular, the Index performed well in the
second quarter of the year, finishing higher by almost 10 per cent. The
results are somewhat surprising as the supply of newly defaulted bond
issues increased throughout 2001. Monthly returns for all 15 years of the
A-NYU Index are listed in Table A.1 in the Appendix. The level of the
Index increased from 165.3 at the end of 2000 to 194.1 at the end of 2001
(December 1986 100).
In 2001, the market experienced only three months with negative
returns. Two of the three negative monthly returns were in excess of 5
per cent with the most significant negative return being 7.84 per cent in
September. In contrast with 2000, the Index experienced four of the nine
months with positive returns in excess of 5 per cent. The S&P 500 Stock
Index, which finished with an annual return of 11.87 per cent (assuming
reinvestment of dividends) in 2001, was comparatively volatile and experienced four consecutive months of negative monthly returns as well as four
months with negative returns in excess of 5 per cent (See Table 7 for our
discussion on comparative returns for highly volatile months).
Table 2: Altman-NYU Salomon Center Defaulted Bond Index Comparison of Returns

(19872001)
Year
Altman-NYU Salomon
Center Defaulted
Bond Index (%)
S&P 500 Stock

Index (%)
Salomon Smith
Barney High Yield
Market Index (%)
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
37.85
26.49
22.78
17.08
43.11
15.39
27.91
6.66
11.26
10.21
1.58
26.91
11.34
33.09
17.47
5.26
16.61
31.68
3.12
30.48
7.62
10.08
1.32
37.56
22.96
34.36
28.58
20.98
9.11
11.87
4.67
13.47
2.75
7.04
39.93
17.86
17.36
1.25
19.71
11.29
13.18
3.60
1.74
5.68
5.44
7.08
14.89
9.14
23.30
4.52
16.21
13.79
11.93
8.56
0.46
1.19
0.71
4.27
0.37
4.51
1.08
1.95
0.69
19872001 Arithmetic
Average (Annual) Rate
Standard Deviation
19872001 Compounded
Average (Annual) Rate
19872001 arithmetic
average (monthly) rate
Standard deviation
19872001 compounded
Defaulted debt securities outperformed the total return on the S&P

500 Stock Index for the first year since 1994. The Index also outperformed
the Salomon Smith Barney High Yield Bond Market Index, which
returned 5.44 per cent; however, all three indexes of risky securities
have posted strong positive gains for the fourth quarter of 2001. Relatively
safe government securities also increased in 2001 posting an annual return
of 4.01 per cent.
4. Fifteen-Year Comparative Performance

Table 2 exhibits the return on defaulted bonds, common stocks, and
high yield bonds over the entire fifteen-year sample period, 19872001.
The arithmetic average for the Altman-NYU Salomon Center Defaulted
Bond Index (7.08 per cent per year) is still less than half that of the S&P
500 Stock Index (14.89 per cent) and below that of the Salomon Smith
Barney High Yield Bond Market Index (9.14 per cent) for the sample
period. 2001 marks the first year since 1994 that defaulted bonds
outperformed the S&P 500 Stock Index and the Salomon Smith Barney
High Yield Bond Market Index and represents the sixth year of this
positive relative performance over the entire sample period. There have
been seven of the fifteen years in which defaulted bonds have performed
worse than both of the other two indexes.
The standard deviation of annual returns for the defaulted bond index
decreased in 2001, but it still remains the largest of the three indexes.
Comparing volatility on a monthly basis, the standard deviation of
monthly returns for defaulted bond issues (4.27 per cent) is in fact lower
than that of the S&P 500 Stock Index (4.51 per cent), while both of these
indexes are considerably more volatile than the high yield bond index (1.95
per cent). The discrepancy between the standard deviations of high yield
bonds and defaulted bonds is consistent with high yield bonds paying a
fairly steady fixed interest component and defaulted bonds having no
interest component.
We calculate the Sharpe ratio for each of our risky asset indexes. This
ratio compares the excess performance (if any) of an asset class compared
to default risk-free Treasury Bonds (we use the 10-year Treasury Bond as
our benchmark) and then divide this excess return by a measure of the
volatility of the asset class (the standard deviation). By observing this
measure of return/risk performance for each of the three asset classes, we
determine that the performance of the defaulted Bond Index continues to
compare unfavourably to the performance of the other two asset classes.
Figure 1 plots the monthly index levels for our three security classes
for the fifteen-year sample period. In March 1995, the S&P 500 Index level
rose above the levels of the other two indexes and remains well ahead. The
High Yield Bond Index took over second place from the Defaulted Bond
Index in mid-1997.
5. Diversification Attributes: Risky Asset Returns Correlations

One strategy that our analysis suggests is to include defaulted debt in a
larger portfolio of risky securities. Several domestic pension funds and
foreign portfolios have effectively used this strategy by allocating a portion
of their total investments to defaulted debt money managers. Almost all
portfolio managers involved in the distressed market have been specialists
in the sector, rather than investors in distressed bonds within broaderbased portfolios. Therefore, the avenue of diversification appears to be
primarily through the use of different investment managers (there are some
rare exceptions where a mutual fund combines investments in more traditional debt and equity securities with distressed securities). Some fund-offunds that have adopted this strategy have also selected managers of
Altman-NYU Salomon Center Defaulted Bond Index

S&P 500 Index
SSMB High Yield Index
Dec-01
Jul-01
Feb-01
Sep-00
Apr-00
Nov-99
Jun-99
Jan-99
Aug-98
900
800
700
600
500
400
300
200
100
Figure 1: Defaulted Bond, Stock and High Yield Bond Indices 19872001.
Mar-98
Oct-97
May-
Dec-96
Jul-96
Feb-96
Sep-95
Apr-95
Nov-94
Jun-94
Jan-94
Aug-93
Mar-93
Oct-92
May-
Dec-91
Jul-91
Feb-91
Sep-90
Apr-90
Nov-89
Jun-89
Jan-89
Aug-88
Mar-88
Oct-87
May-
Dec-86
Index value
1,000
distressed securities with different styles including active, semi-active and

passive approaches. A similar strategy, practiced by foreign closed-end
funds, is to directly invest in a large number of private US distressed
securities investment funds. Instead of diversifying across asset classes,
these funds have a strategy of investing with managers of distressed
securities who practice different approaches (e.g., active, passive, longshort, senior vs subordinate).
Table 3 exhibits the correlation between the Altman-NYU Defaulted
Bond Index and each of the two other risky asset classes common stocks
and high yield bonds for the last fifteen years. As of 31 December 2001,
we observe that the monthly return correlation between defaulted debt and
the S&P 500 Stock Index is only 24.89 per cent. The correlation between
defaulted debt and S&P equities is below the correlation between these two
asset classes as of last year (26.6 per cent) and 1999 (25.6 per cent). The low
correlation is important to note because holders of defaulted debt usually
exchange their debt for the equity of the emerged Chapter 11 entity, unless
they sell the debt just prior to emergence. The correlation between these two
asset classes on a quarterly basis is slightly higher at 30.68 per cent.
The correlation between defaulted bonds and high yield bonds, however, is comparatively high. The monthly correlation of returns is 56.67 per
cent, while the quarterly correlation between these two asset classes is
57.51 per cent. As was the case in 2000, the correlation between high
yield bonds and the Altman-NYU Salomon Center Defaulted Loan
Index (see discussion below) is lower than that of defaulted bonds and
high yield bonds, at 38.34 per cent and 37.97 per cent for monthly and
quarterly returns, respectively. The returns for defaulted bank loans have
an implied inverse relationship with the S&P 500 Stock Index, as we
observe negative correlations between these two asset classes (Table 6).
We believe that the relatively high correlation of defaulted securities
and risky bonds is partially a function of the operating performance of
Table 3: Correlation of Altman-NYU Salomon Center Indexes of Defaulted Bonds with
Other Speculative Securities Indexes 19872001
Altman-NYU
Salomon Smith
Bond Index S&P 500 Stock Barney High
(%)
Index (%)
Yield Index (%)
Correlation of Monthly Returns
Altman-NYU Bond Index
S&P 500 Stock Index
Salomon Smith Barney High Yield Index
Correlation of Quarterly Returns
S&P 500 Stock Index
Salomon Smith Barney High Yield Index
100.00
24.89
100.00
56.67
50.61
100.00
100.00
30.68
100.00
57.51
48.09
100.00
firms in general, the outlook for risky companies, and the overall level of
confidence in the market for risky debt. Although these latter correlations
are relatively high, it is also clear that the Defaulted Bond Index is more
volatile, in both good and bad years. Again, this is not surprising since
high yield debt has a base inflow of interest payments received in each
period while virtually all defaulted bonds and most defaulted loans trade
flat (without interest receipts). In addition, there is a great deal of
uncertainty about what the reorganization plan will specify and how
each class of creditors will be treated not to mention the possibility
that the end-result could be a liquidation. Finally, there are several critical
events that occur during a bankruptcy reorganization (i.e., bankruptcy
filing, post-default financing, outside merger offer, filing of a reorganization plan and the actual plan confirmation and emergence) which can
result in large swings in the price of debt issues on or around those specific
event dates.
We do observe that the relative volatility between defaulted bonds and
equity returns, when measured on a monthly basis, puts the former in a
much more favorable light than when measured on an annual basis. This
implies a greater degree of autocorrelation (strings of gains or losses) that
can exacerbate annual return levels and volatility but not monthly return
variability.
6. Defaulted Bank Loan Performance

Managers of distressed securities are more commonly investing in
both distressed bonds and the private debt (particularly bank debt) of
defaulting companies. The observed increasing investment in defaulted
private debt has been coincident with the bank loan markets increasing
size and liquidity as market makers have devoted considerable resources to
bank debt trading. We have responded by calculating an index of
defaulted bank debt facilities, as well as a Combined Index of bonds and
bank loans.
The Altman-NYU Salomon Center Index of Defaulted Bank Loans,
like the defaulted bond index, is a market-weighted index comprised of US
companies. The Index contained 17 facilities at its inception in December
1995 and has grown by about fifty issues in each of the past two years to
reach 141 facilities as of 31 December 2001 (Table 4). The market/face
ratio climbed from 0.51 in 2000 to 0.53 as of the end of 2001, even as the
Indexs face and market values nearly doubled during the year to reach
$44.7 billion and $23.8 billion, respectively.
The increase in the market/face ratio, albeit a marginal one, reverses a
four-year downward trend of this important measure and suggests additional future positive Index returns. The Bank Loan Indexs market/face
Table 4: Size of the Altman-NYU Salomon Center Defaulted Bank Loan Index (19952001)
Year end
1995
1996
1997
1998
1999
2000
2001
Number of
issues
Number of
firms
Face value
($ billions)
Market value
($ billions)
Market/face ratio
17
23
18
15
45
100
141
14
22
15
13
23
39
56
2.9
4.2
3.4
3.0
12.9
26.9
44.7
2.0
3.3
2.4
1.9
6.8
13.6
23.8
0.69
0.79
0.71
0.63
0.53
0.51
0.53
value ratio compares very favourably with that of our Defaulted Bond
Index (0.21); however, our loan index is comprised of only senior debt,
much of which is secured, while the Bond Index is made up of both senior
and subordinated debt. Furthermore, the Bank Loan Index market/face
ratios of 0.53 is just above the measures lowest level in the six-year history
of our index and is considerably lower than what is typical for defaulted
bank loans (see our summary Tables 1219 of a number of empirical
studies).
In 2001, our Bank Loan Index performed very well, returning 13.94
per cent for the year and closing at 116.99 (December 1995 100). The
Index outperformed both the S&P 500 Index and the Salomon Smith
Barney High Yield Bond Market Index. Although bank loans did not
perform as well as defaulted bonds, our Defaulted Bond Index was almost
twice as volatile as the Bank Loan Index (when comparing standard
deviation of monthly returns). In fact, bank loans were the least volatile
of all four risky asset indexes in 2001 (on both a quarterly and monthly
basis) even as the Salomon Smith Barney High Yield Bond Market Index
continued to be the least volatile index on a historical basis. Our Bank
Loan Index experienced only one abnormal monthly return, February
2001, when it gained 6.71 per cent and only four months of negative
returns, including the 1.99 per cent in September. Table A.1 in the
Appendix shows performance of our Defaulted Bank Loan Index from
its inception through 31 December 2001.
The average annual return of our Defaulted Bank Loan Index since its
inception in 1996 jumped from 1.03 per cent in 2000 to 3.18 per cent as of
2001 and remains above the average annual returns for the Defaulted
Bond Index over the comparable period (3.76 per cent); however, it
still trails both the equities and high yield bond indexes (Table 5).
As we previously noted, the correlations between our Defaulted Bank
Loan Index and equity returns is 14.1 per cent (versus only 7.4 per cent
as of last year), while the correlation between bank loans and the High
Yield Bond Index (38.34 per cent) was lower than that of 2000 (Table 6).
The correlation coefficients of defaulted bonds with equities and high yield
Table 5: Altman-NYU Salomon Center Bank Loan Index Comparison of Returns

(19962001)
Altman-NYU
Salomon Center Bank
Loan Index (%)
S&P 500 Stock

Index (%)
Salomon Smith
Barney High Yield
Market Index (%)
1996
1997
1998
1999
2000
2001
19962001 arithmetic
average (annual) rate
Standard deviation
19962001 compounded
average (annual) rate
19.56
1.75
10.22
0.65
6.59
13.94
3.18
22.96
34.36
28.58
20.98
9.11
11.87
14.32
11.29
13.18
3.60
1.74
5.68
5.44
4.93
11.55
2.65
19.79
12.79
6.83
4.74
19962001 arithmetic
Standard deviation
19962001 compounded
0.26
1.13
0.41
2.80
0.22
4.89
1.01
2.10
0.39
Year
bonds are considerably different (24.89 per cent and 56.67 per cent,
respectively). The continued disparity in return correlations supports our
argument that monthly movements of bonds and bank loans are driven in
large part by strategic objectives related to the seniority of securities of
individual firms as well as overall assessment of the company.
Table 6: Correlation of Altman-NYU Salomon Center Indexes of Defaulted Loans with

other Speculative Securities Indexes 19962001
Salomon
Altman-NYU S&P 500 Smith Barney Altman-NYU
Loan
Stock
High Yield
Bond Index
Index (%)
Index (%)
Index (%)
(%)
Correlation of Monthly Returns
Altman-NYU Loan Index
S&P 500 Stock Index
Salomon Smith Barney High
Yield Index
Correlation of Quarterly Returns
Altman-NYU Loan Index
S&P 500 Stock Index
Salomon Smith Barney High
Yield Index
100.00
14.10
100.00
38.34
50.52
100.00
59.35
14.90
55.18
100.00
100.00
8.55
100.00
37.97
56.10
100.00
67.14
37.07
45.30
100.00
7. Correlation in Exceptional Months

Although we focus our analysis on correlation coefficients for the
entire sample period of 19872001, we also believe that it is important to
analyse correlations between these asset classes for months with abnormal
stock market returns. We define abnormal equity returns as months in
which the S&P 500 Stock Index experienced returns greater/less than
/5.0 per cent. In 2001, our sample size increased to 43 months of
abnormal equity returns during the fifteen-year period (Table 7).
The correlations calculated (not shown) from the data for the exceptional months are all considerably higher than the correlations when they
are measured over the entire fifteen-year period. For example, our
defaulted bond index had a 35.76 per cent correlation with the stock
market compared to 24.89 per cent for the entire period. The S&P 500
Stock Index correlation with high yield bonds jumps from 56.67 per cent
to 69.6 per cent. This implies a type of contagion effect in these highly
volatile months, i.e., the more liquid, and larger stock markets extreme
performance in these months impacts the performance of debt securities
that are also perceived as risky but quite a bit less liquid. Despite the
higher correlations during exceptional months, we also observe that in
twenty of the 43 months, the stock market and defaulted bond market
moved in opposite directions.
8. Combined Bond and Bank Loan Index

Our Combined Defaulted Securities Index is calculated based on the
market values and total returns of public bonds and private bank loans
and returns. This Index, from its inception in 1996 through 2001, is
displayed in Table A.3 of the Appendix. The annual return for the Combined Index was 15.56 per cent for 2001 while the cumulative index level
closed out the year at 97.2, up from 84.2 in 2000. The addition of the
Combined Index enables us to benchmark performance criteria for a more
broadly defined defaulted securities market.
9. Size of the Defaulted and Distressed Debt Market

The size of the defaulted and distressed debt market again grew in
2001 to its largest size since we have been indexing this asset class, topping
even the extraordinary levels of 2000. Table 8 exhibits the significant
amount of newly defaulted bonds during 2001, as the figure more than
doubled ($63.6 billion) from that of 2000 ($30 billion). At the end of 2001,
the distressed proportion of the total high yield market (including
Table 7: Correlation between Indexes given a Change in S&P Greater than 5 per cent
Month
Jan-87
Jun-87
Jul-87
Oct-87
Nov-87
Dec-87
Jan-89
Apr-89
Jul-89
Jan-90
May-90
Aug-90
Nov-90
Feb-91
Dec-91
Sep-96
Jan-97
Apr-97
May-97
Jul-97
Aug-97
Sep-97
Feb-98
Mar-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
Jun-99
Oct-99
Dec-99
Jan-00
Mar-00
Aug-00
Sep-00
Nov-00
Feb-01
Mar-01
Apr-01
Aug-01
Sep-01
Nov-01
Bank Loan
Index (%)
Bond Index
(%)
S&P 500 Stock

Index (%)
Salomon Smith Barney

High Yield Index (%)
0.79
1.88
6.63
1.93
0.45
1.19
2.41
0.84
1.68
6.27
6.16
7.88
5.44
0.85
2.58
2.64
0.12
3.64
5.48
0.65
0.86
1.39
6.71
0.57
2.31
3.05
1.99
1.12
9.80
2.90
5.50
8.92
3.22
7.53
4.47
2.06
2.46
2.91
1.23
3.03
2.69
8.49
3.53
2.11
1.54
2.13
0.11
0.23
2.27
1.64
2.96
0.82
18.25
11.21
9.48
7.32
2.43
1.00
7.13
0.92
3.50
2.86
3.96
0.64
10.10
5.90
5.43
2.57
2.04
7.84
1.57
13.47
5.05
5.07
21.54
8.24
7.61
7.32
5.19
9.03
6.71
9.75
9.04
6.46
7.15
11.44
5.63
6.25
5.97
6.88
7.96
5.60
5.48
7.21
5.12
14.46
6.41
8.13
6.06
5.76
5.50
6.33
5.89
5.02
9.77
6.21
5.28
7.88
9.11
6.33
7.76
6.25
8.07
7.67
2.83
1.38
0.54
2.67
2.53
1.33
1.50
0.30
0.47
3.03
2.63
3.87
2.02
8.82
1.34
2.34
0.75
0.71
2.02
2.29
0.25
1.75
0.68
1.08
6.70
1.23
1.38
5.02
0.07
0.22
0.68
0.84
0.83
2.03
0.74
1.07
4.09
1.19
1.82
1.47
1.37
7.20
3.80
defaulted securities) was 22 per cent and the defaulted proportion grew to
13 per cent (Figure 2). Although the supply of distressed high yield bonds
(defined as yield to maturity greater than 1000 basis points over ten-year
Treasuries) declined in 2001 to $160.6 billion from $186 billion in 2000, the
total face value amount of defaulted and distressed public bonds outstanding grew from 2000s record levels of $233 billion to $256.9 billion
Table 8: Historical Default Rates - Straight Bonds only Excluding Defaulted Issues from Par
Value Outstanding 19712001 ($ Millions)
Year
Par value outstanding* Par value defaults Default rates (%)
2001
$649,000
2000
$597,200
1999
$567,400
1998
$465,500
1997
$335,400
1996
$271,000
1995
$240,000
1994
$235,000
1993
$206,907
1992
$163,000
1991
$183,600
1990
$181,000
1989
$189,258
1988
$148,187
1987
$129,557
1986
$90,243
1985
$58,088
1984
$40,939
1983
$27,492
1982
$18,109
1981
$17,115
1980
$14,935
1979
$10,356
1978
$8,946
1977
$8,157
1976
$7,735
1975
$7,471
1974
$10,894
1973
$7,824
1972
$6,928
1971
$6,602
Arithmetic average default rate
1971 TO 2001
1978 TO 2001
1985 TO 2001
Weighted average default ratey
1971 TO 2001
1978 TO 2001
1985 TO 2001
Median annual default rate
1971 TO 2001
$63,609
$30,295
$23,532
$7,464
$4,200
$3,336
$4,551
$3,418
$2,287
$5,545
$18,862
$18,354
$8,110
$3,944
$7,486
$3,156
$992
$344
$301
$577
$27
$224
$20
$119
$381
$30
$204
$123
$49
$193
$82
9.801
5.073
4.147
1.603
1.252
1.231
1.896
1.454
1.105
3.402
10.273
10.140
4.285
2.662
5.778
3.497
1.708
0.840
1.095
3.186
0.158
1.500
0.193
1.330
4.671
0.388
2.731
1.129
0.626
2.786
1.242
2.941
3.234
4.077
S.D. 2.746
S.D. 2.963
S.D. 3.096
4.319
4.347
4.440
S.D. 3.204
S.D. 3.208
S.D. 3.204
1.708
Notes:
* As of mid-year.
y
Weighted by par value of amount outstanding for each year.
Source: Authors compilations and Salomon Smith Barney Estimates
(Table 9). Assuming an average private to public debt ratio of 1.65, down
from 1.8 in 2000 and 2.0 in 1999, the level of public and private defaulted
and distressed debt reached a face value of $680.8 billion and topped
2000s record amount of $652.4 billion. We have maintained our market
45%
Defaulted
Distressed
40%
17%
35%
30%
28%
25%
31%
20%
22%
8%
15%
26%
10%
15%
14%
5%
6%
13%
7%
3%
2%
5%
1995
1998
1999
0%
1990
1992
1993
9%
7%
2000
Figure 2: Distressed* and Defaulted Debt as a Percentage of Total High Yield Debt Market
Note: * Defined as yield-to-maturity spread greater than or equal to 1000bp over comparable Treasuries
Source: Salomon Smith Barney and NYU Salomon Center
2001
50%
Table 9: Estimated Face and Market Values of Defaulted and Distressed Debt 20002001
($ Billions)
Face values
Market values
12/31/00
12/31/01
12/31/00
12/31/01
Public Debt
Defaulted
Distressed
Total public
$47.0
$186.0
233.0
$96.3
$160.6
256.9
$11.8 (0.25xFV)
$93.0 (0.50xFV)
104.8
$24.1 (0.25xFV)
$80.3 (0.50xFV)
104.4
Private debt
Defaulted
Distressed
Total private
Total public and private
$84.6
$334.8
$419.4
$652.4
$158.9
$265.0
$423.9
$680.8
$50.8 (0.60xFV)
$251.1 (0.75xFV)
$301.9
$406.7
$95.3 (0.60xFV)
$198.8 (0.75xFV)
$294.1
$398.5
Notes: For 12/31/00, we use a private/public ratio of 1.80. For 12/31/01, we use a private/public ratio of
1.65.
Sources: Estimated by Professor Edward Altman, NYU Stern School of Business from Salomon Smith
Barneys High Yield Bond DataBase, NYU Salomon Center Defaulted Bond DataBase, New Generation
Research Corporation.
value benchmarks at 0.25 and 0.50 of face value for public defaulted and
distressed bonds, respectively, and 0.60 and 0.75 of face value for private
defaulted and distressed debt, respectively. The resulting estimated market
value for distressed and defaulted debt fell slightly to just under $400
billion and the trends of these amounts are shown in Figure 3.
We expect a minimum of another 78 per cent default rate on high
yield bonds in 2002. This will add to our base supply of defaulted securities. And, if the default rate peaks in the first or second quarter of 2002,
this will probably be good news for distressed investors as the supply of
new distressed debt should subside somewhat relative to the demand.
10. Bank Loan Recovery Study

Despite the significant increase in the number of loan facilities contained within our Index, there are few published studies on recovery rates
on defaulted bank loans. Given the continued disparity between our Bank
Loan Indexs market/face value ratio and the typical experience for
defaulted bonds, we believe that estimating recovery rates on defaulted
bank loans using our Index would be interesting. The analysis contained a
sample of 172 defaulted bank loan facilities from 1996 through November
2001. The recovery rate is determined by prices from the secondary market
at or just after default.
We discovered that the median, mean, and weighted average values of
defaulted bank loan recovery rates over this period were 64.75 per cent,
62.23 per cent and 58.38 per cent respectively (Table 10). The standard
600
500
400
Face value
Market value
300
200
100
0
1990
1992
1993
1995
1998
1999
2000
Figure 3: Size of the Defaulted and Distressed Debt Market 19902001.

Source: E.Altman, NYU Salomon Center.
2001
700
Table 10: Recovery Rate on Bank Loan Defaults: 19962001 (Prices at or just after default)
Year
Number of Number of
issuers
facilities
Median Weighted average Average Standard deviation
1996
1997
1998
1999
2000
2001
7
4
4
20
18
39
9
4
5
40
41
95
86.00
87.88
72.00
51.25
65.00
64.50
80.42
94.86
84.70
54.44
59.36
57.40
73.34
87.92
75.77
56.31
66.06
59.51
24.41
12.61
18.34
22.96
16.69
20.69
Total
92
194
64.75
58.38
62.23
21.22
Source: Altman NYU Salomon Center Defaulted Debt Index
error was 21.22 per cent, which somewhat supports a wide dispersion of
defaulted bank loan recovery rates and a number of particularly low
recovery rates. We also observed recovery rates by year of default and
found that both the median and mean defaulted bank loan recovery values
generally decreased over time, with 1999 being the only exception. This
was particularly true for the weighted average which fell from the 8090
per cent range to the 5560 per cent range in 19992001.2
In addition, we attempted to determine the extent to which defaulted
bank loan recovery rates for telecommunications and e-commerce companies mirrored the experience of defaulted bonds for companies in those
sectors, which were considerably lower than those of companies in more
traditional sectors. Table 11 displays the results for telecommunications
and e-commerce companies only. It is interesting to note that median,
mean and weighted mean recoveries are only marginally lower (62.25 per
cent, 59.09 per cent and 54.23 per cent) and do not have the same
experience as recovery rates on defaulted bonds in these sectors.
Table 11: Recovery Rate on Bank Loan Defaults: 19992001 Telecommunications and
E-commerce Only (Prices at or just after default)
Year
Number of Number of
issuers
facilities
Median Weighted average Average Standard deviation
1999
2000
2001
2
2
13
4
7
34
46.33
51.00
67.00
45.69
60.62
55.00
46.17
64.21
59.54
0.84
19.49
24.65
Total
17
45
62.25
54.23
59.09
23.00
Source: Altman NYU Salomon Center Defaulted Debt Index
2
See our ISDA report, E. Altman, A. Resti and A. Sironi, Analyzing and Explaining Default
Recovery Rates, International Swaps and Derivatives Association, 2002, for a discussion of an
econometric model that shows a significant negative association between default and recovery rates;
http://www.isda.org.
Table 12: Bond and Bank Loan Recovery Rates on Defaulted Securities: Results from Altman
(2002) Study Period Covered 19782001, Prices at Default on Public Bonds
Bond seniority
Number of issues
Median (%)
Mean (%)
Standard deviation
134
475
340
247
93
57.42
42.27
31.90
31.96
17.40
52.97
41.71
29.68
31.03
18.97
23.05
26.62
24.97
22.53
17.64
1289
40.05
35.85
24.87
Senior secured
Senior unsecured
Senior subordinated
Subordinated
Discount
Total sample
Table 13: Bond and Bank Loan Recovery Rates on Defaulted Securities: Results from Altman
(2002) Investment Grade vs. Non-Investment Grade (Original Rating) (19712001) Prices at
Default on Public Bonds
Number of
observations
Median
price (%)
Average
price (%)
Weighted
price (%)
Standard
deviation (%)
Senior secured
Investment grade
Non-investment grade
35
113
57.00
30.00
62.00
38.65
66.00
32.89
19.70
29.46
Senior unsecured
Investment grade
159
275
50.00
31.00
53.14
33.16
55.88
30.17
26.14
25.28
25
283
27.54
28.00
39.54
33.31
42.04
29.62
24.23
24.84
10
206
35.69
28.00
35.64
31.72
23.55
28.87
32.05
22.06
Seniority
Senior subordinated
Investment grade
Subordinated
Investment grade
Table 14: Bond and Bank Loan Recovery Rates on Defaulted Securities: Results from
Altman and Pompeii (2002) Bank Loan (19962001) Prices at or Just After Default on All
Bank Loans
Year
Number of facilities
Median
Weighted average
Average
Standard deviation
1996
1997
1998
1999
2000
2001
9
4
5
40
41
95
86.00
87.88
72.00
51.25
65.00
64.50
80.42
94.86
84.70
54.44
59.36
57.40
73.34
87.92
75.77
56.31
66.06
59.51
24.41
12.61
18.34
22.34
16.69
20.69
Total
194
64.75
58.38
62.23
21.22
As expected, these results compare favourably with the recovery rates

of defaulted bonds. Average loan recoveries in recent years, however, are
somewhat below average as reflected in the market/face value ratio. Our
analysis of defaulted bonds estimates the mean and median recovery rate
for defaulted bonds for the period of 19872001 is 35.85 per cent and 40.05
FITCH (2001) Period Covered 19972000, Prices One Month After Chapter 11 and
Confirmation Dates of Emerged Companies
Debit type/Seniority
Average
Average
Bank debt Bank debt
recovery at recovery at
>45% of <45% of
Number of
Chapter
confirmation
debt
debt
observations
11 (%)
(%)
(%)
(%)
Senior secured loans

Senior unsecured bonds
Subordinated bonds
All bonds
35
18
17
35
73.0
35.0
17.0
26.0
72.1
17.0
22.0
73.0
16.0
81.0
28.0
FITCH (1997) Period Covered June 1991 June 1997
Average
Average
Bank Debt Bank Debt
Number of
recovery at
recovery at
>45% of
<45% of
Debit type/Seniority observations Chapter 11 (%) confirmation debt (%)
debt (%)
Bank loans
Senior subordinated
Subordinated bonds
60
60
60
82.0
42.0
39.0
Moodys (2001) Period Covered 19702000, Prices One Month After Default
Median (%)
Average (%)
Standard deviation (%)
72.0
45.0
53.8
44.0
29.0
28.5
15.1
64.0
49.0
52.6
46.9
34.7
31.6
22.5
24.4
28.4
24.6
28.0
24.6
21.2
18.7
Senior secured bank loans

Senior unsecured bank loans
Senior secured bonds
Senior subordinated bonds
Subordinated bonds
Jr subordinated bonds
Standard & Poors (2000) Period Covered 19811999, Prices Shortly After Default and at
Emergence
Number of
observations
Weighted
average
(%)
Simple
average
(%)
Standard
deviation
(%)

Subordinated bonds
Jr subordinated bonds
91
237
177
144
49.32
47.09
32.46
35.51
54.28
46.57
35.20
34.98
24.25
25.24
24.67
27.32
86.71
76.66
47.88
32.48
Total (all bonds)
649
40.23
41.88
25.23
56.91 (399)
Weighted
average at
emergence (%)
(52)
(157)
(94)
(96)
Standard & Poors (2001) Period Covered (19812001), Discounted and Nominal Prices at
Confirmation of Chapter 11
Number of Nominal simple Discounted simple
Standard
observations average (%)
average (%)
deviation (%)
Senior bank loans
Senior subordinated bonds
Subordinated bonds
455
196
208
251
352
88.32
79.03
64.29
43.41
36.22
77.05
69.30
53.21
36.60
31.11
28.54
31.04
35.57
33.20
35.13
per cent, respectively. Tables 1219 illustrate the key results of this and
several other studies. Although none of the other studies of bank loan
recovery rates analyse the same period of time and sample size as we do
here, it is interesting to note the wide range of results. Fitch (Tables 15 and 16)
estimates the mean recovery rate of senior secured loans at 73 per cent at
Chapter 11, while Moodys (Table 17) average recovery rate for senior
secured bank loans is considerably lower at 64 per cent much closer to
our results of 62.23 per cent; however, their estimated recovery rate for
unsecured bank loans is significantly lower at 49 per cent.
REFERENCES
E. ALTMAN - P. ARMAN (2002), Defaults and Returns in the High Yield Bond
Market: Analysis Through 2001, NYU Salomon Center Working Paper,
January.
E. ALTMAN - J. POMPEII (2002), Market Size and Investment Performance of
Defaulted Bonds & Bank Loans: 19872001, NYU Salomon Center Working
Paper, January.
FITCH (2001), Bank Loan and Bond Recovery Study: 19972001, S. OShea,
S. Bonelli and R. Grossman, March 19.
FITCH (1997), Syndicated Bank Loan Recovery Study, R. Grossman, M. Brennan
and Vento, October 22.
MOODYS (2001), Default and Recovery Rates of Corporate Bond Issuers: 2000,
D. Hamilton, G. Gupta and A. Berthault, February.
STANDARD & POORS (2000), Recoveries on Defaulted Bonds Tied to Seniority
Ratings, L. Brand and R. Behar, Credit Week, February.
STANDARD & POORS/PMD (2001), Update of Recovery Rates, D. Keisman,
November.
Table A.1: Altman-NYU Salomon Center Index of Defaulted Public Bonds and Bank Loans*
MONTH
PUBLIC
BANK
PUBLIC
BOND
LOAN
S&P
SSMB-HYMI
BOND RETURN RETURN RETURN
RETURN
INDEX
(%)
(%)
(%)
(%)
JAN-87
FEB-87
MAR-87
APR-87
MAY-87
JUN-87
JUL-87
AUG-87
SEP-87
OCT-87
NOV-87
DEC-87
TOTAL 1987 RETURN
109.80
121.37
125.95
127.52
128.09
131.80
139.05
139.77
136.35
124.19
128.19
137.85
9.80
10.53
3.77
1.25
0.44
2.90
5.50
0.52
2.45
8.92
3.22
7.53
37.85
13.47
3.95
2.89
0.89
0.87
5.05
5.07
3.73
2.19
21.54
8.24
7.61
5.26
JAN-88
FEB-88
MAR-88
APR-88
MAY-88
JUN-88
JUL-88
AUG-88
SEP-88
OCT-88
NOV-88
DEC-88
TOTAL 1988 RETURN
139.84
147.45
152.01
156.85
155.42
166.94
165.05
160.40
160.28
157.69
166.88
174.36
1.44
5.44
3.10
3.18
0.91
7.41
1.14
2.82
0.07
1.61
5.83
4.48
26.49
4.21
4.66
3.09
1.11
0.87
4.59
0.38
3.40
4.26
2.78
1.43
1.75
16.61
JAN-89
FEB-89
MAR-89
APR-89
MAY-89
JUN-89
JUL-89
AUG-89
SEP-89
OCT-89
NOV-89
DEC-89
TOTAL 1989 RETURN
166.57
159.93
159.60
162.88
164.53
164.38
168.43
164.96
152.03
139.26
135.58
134.64
4.47
3.99
0.21
2.06
1.01
0.09
2.46
2.06
7.84
8.40
2.64
0.70
22.78
7.32
2.49
2.33
5.19
4.05
0.57
9.03
1.96
0.41
2.32
2.04
2.40
31.68
1.75
0.43
0.01
0.69
1.70
1.45
0.45
0.39
1.62
2.26
0.37
0.22
2.75
JAN-90
FEB-90
MAR-90
APR-90
MAY-90
JUN-90
JUL-90
AUG-90
SEP-90
OCT-90
NOV-90
130.72
127.03
132.08
134.03
132.37
130.12
133.09
129.06
125.21
119.85
116.63
2.91
2.83
3.98
1.48
1.23
1.71
2.29
3.03
2.99
4.28
2.69
6.71
1.29
2.65
2.50
9.75
0.68
0.32
9.04
4.87
0.43
6.46
3.03
1.10
1.06
0.51
2.63
1.86
1.73
3.87
5.13
3.54
2.02
Table A.1: Continued
MONTH
DEC-90
TOTAL 1990 RETURN
JAN-87
JAN-91
FEB-91
MAR-91
APR-91
MAY-91
JUN-91
JUL-91
AUG-91
SEP-91
OCT-91
NOV-91
DEC-91
TOTAL 1991 RETURN
PUBLIC
BANK
PUBLIC
BOND
LOAN
S&P
SSMB-HYMI
RETURN
INDEX
(%)
(%)
(%)
(%)
111.64
109.80
115.20
124.97
135.60
154.06
158.67
161.31
169.99
167.79
165.36
167.15
165.61
159.77
4.27
17.08
9.80
3.18
8.49
8.50
13.62
2.99
1.66
5.39
1.30
1.45
1.08
0.92
3.53
43.11
2.79
3.12
13.47
4.36
7.15
2.42
0.24
4.32
4.58
4.66
2.37
1.67
1.34
4.03
11.44
30.48
1.01
7.04
2.59
8.82
5.24
3.75
0.71
2.10
2.85
2.33
0.67
3.00
0.95
1.34
39.93
JAN-92
FEB-92
MAR-92
APR-92
MAY-92
JUN-92
JUL-92
AUG-92
SEP-92
OCT-92
NOV-92
DEC-92
TOTAL 1992 RETURN
171.04
176.52
183.40
182.90
187.59
185.62
186.09
184.76
183.03
181.53
180.79
184.36
7.06
3.21
3.90
0.27
2.57
1.05
0.25
0.72
0.93
0.82
0.41
1.97
15.39
1.86
1.30
1.95
2.94
0.49
1.49
4.09
2.05
1.18
0.35
3.41
1.23
7.62
2.89
2.93
1.48
0.74
1.87
1.24
1.85
1.33
0.93
1.22
1.38
1.19
17.86
JAN-93
FEB-93
MAR-93
APR-93
MAY-93
JUN-93
JUL-93
AUG-93
SEP-93
OCT-93
NOV-93
DEC-93
TOTAL 1993 RETURN
194.59
200.59
208.93
209.49
214.81
218.68
224.26
226.79
229.73
231.21
235.27
235.82
5.55
3.09
4.16
0.27
2.54
1.80
2.55
1.13
1.30
0.64
1.76
0.23
27.91
0.84
1.36
2.11
2.42
2.68
0.29
0.40
3.79
0.77
2.07
0.95
1.21
10.08
2.44
1.89
1.55
0.77
1.38
2.23
0.98
1.08
0.24
1.94
0.54
1.10
17.36
JAN-94
FEB-94
MAR-94
APR-94
MAY-94
JUN-94
JUL-94
Aug-94
239.18
246.84
248.71
243.63
246.53
243.90
245.06
246.86
1.43
3.20
0.76
2.04
1.19
1.06
0.47
0.74
3.40
2.71
4.36
1.28
1.64
2.45
3.28
4.10
2.17
0.46
3.72
0.91
0.35
0.11
0.98
0.56
MONTH
PUBLIC
BANK
PUBLIC
BOND
LOAN
S&P
SSMB-HYMI
RETURN
INDEX
(%)
(%)
(%)
(%)
Sep-94
Oct-94
Nov-94
Dec-94
TOTAL 1994 RETURN
250.31
251.04
252.28
251.51
1.40
0.29
0.50
0.30
6.66
2.45
2.25
3.64
1.48
1.32
0.26
0.02
1.10
1.12
1.25
JAN-95
FEB-95
MAR-95
APR-95
May-95
Jun-95
Jul-95
Aug-95
Sep-95
Oct-95
Nov-95
Dec-95
TOTAL 1995 RETURN
Jan-96
Feb-96
Mar-96
Apr-96
May-96
Jun-96
Jul-96
Aug-96
Sep-96
Oct-96
Nov-96
Dec-96
TOTAL 1996 RETURN
250.97
256.42
267.27
267.51
282.02
281.51
282.02
282.10
286.47
273.01
278.39
279.84
0.22
2.17
4.23
0.09
5.42
0.18
0.18
0.03
1.55
4.70
1.97
0.52
11.26
2.51
7.75
4.54
1.98
1.28
3.31
1.09
0.24
2.11
1.90
8.62
5.10
10.21
0.96
2.80
2.79
0.01
4.87
3.76
1.38
1.14
0.79
1.69
0.37
0.10
19.56
2.59
3.90
2.95
2.95
4.00
2.32
3.31
0.25
4.22
0.36
4.39
1.93
37.56
3.40
0.93
0.96
1.47
2.58
0.38
4.42
2.11
5.63
2.76
7.56
1.98
22.96
1.44
3.33
1.04
2.35
2.98
0.71
1.20
0.62
1.16
0.84
0.91
1.59
19.71
1.47
0.62
0.50
0.03
0.56
0.77
0.65
1.04
2.34
1.15
1.92
0.79
11.29
286.86
309.09
323.11
329.51
333.71
344.77
340.99
341.81
349.01
355.63
324.98
308.40
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
TOTAL 1997 RETURN
303.64
308.02
313.37
306.69
307.03
305.28
304.59
311.49
316.60
315.20
311.57
303.53
1.54
1.44
1.74
2.13
0.11
0.57
0.23
2.27
1.64
0.44
1.15
2.58
1.58
1.88
2.40
0.77
6.63
1.93
3.60
0.45
1.19
2.41
0.24
0.41
1.82
1.75
6.25
0.78
4.11
5.97
6.88
4.48
7.96
5.60
5.48
3.34
4.63
1.72
34.36
0.75
1.70
1.03
0.71
2.02
1.69
2.29
0.25
1.75
0.80
0.51
1.05
13.18
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
303.5
309.5
312.0
312.6
319.7
318.8
322.5
0.00
1.96
0.82
0.19
2.27
0.28
1.15
0.38
0.84
1.68
4.19
2.33
0.99
0.05
1.11
7.21
5.12
1.01
1.72
4.06
1.07
2.26
0.68
1.08
0.54
0.27
0.22
0.80
MONTH
PUBLIC
BANK
PUBLIC
BOND
LOAN
S&P
SSMB-HYMI
RETURN
INDEX
(%)
(%)
(%)
(%)
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
1998 YTD
263.6
234.1
211.9
227.4
221.9
18.25
11.21
9.48
7.32
2.43
26.91
6.26
6.16
7.88
5.44
0.85
10.22
14.46
6.41
8.13
6.06
5.76
28.58
6.70
1.23
1.38
5.02
0.07
3.60
Jan-99
Feb-99
Mar-99
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
1999 YTD
222.3
231.0
242.8
269.8
266.7
269.4
279.5
265.6
251.5
233.5
249.3
247.0
0.22
3.91
5.07
11.15
1.14
1.00
3.75
4.96
5.33
7.13
6.75
0.92
11.34
3.59
1.01
1.70
2.91
1.92
2.58
1.31
4.80
1.29
2.64
2.31
0.12
0.65
4.18
3.11
4.00
3.87
2.36
5.50
3.12
0.50
2.74
6.33
2.04
5.89
20.98
1.50
0.84
0.85
2.09
1.57
0.22
0.22
1.19
0.76
0.68
1.57
0.84
1.74
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00
2000 YTD
255.7
253.1
245.9
232.0
219.3
221.9
221.2
212.4
211.1
196.5
176.6
165.3
3.50
1.01
2.86
5.64
5.46
1.16
0.32
3.96
0.64
6.91
10.10
6.42
33.09
3.64
2.27
5.48
1.02
0.08
1.46
0.38
0.65
0.86
0.71
1.39
0.39
6.59
5.02
1.89
9.77
3.01
2.05
2.47
1.56
6.21
5.28
0.42
7.88
0.49
9.11
0.83
0.24
2.03
0.40
1.39
2.25
1.09
0.74
1.07
2.96
4.09
2.04
5.68
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
2001 YTD
172.8
183.0
173.1
168.6
180.7
189.7
191.9
195.8
180.5
190.2
193.1
194.1
4.55
5.90
5.43
2.57
7.20
4.96
1.17
2.04
7.84
5.35
1.57
0.52
17.47
4.11
6.71
0.57
2.31
2.04
1.27
0.22
3.05
1.99
1.73
1.12
0.89
13.94
3.55
9.11
6.33
7.76
0.67
2.43
0.98
6.25
8.07
1.91
7.67
0.88
11.87
6.74
1.19
1.82
1.47
1.61
2.75
1.88
1.37
7.20
3.32
3.80
0.64
5.44
* Returns (19872000) and Comparison with S&P 500 stock index and Salomon Smith Barney High Yield
Market Index (December 1986 100)
Table A.2: Altman-NYU Salomon Center Index of Defaulted Bank Loans
MONTH
BANK
LOAN
INDEX
BANK
PUBLIC
LOAN
BOND
S&P
SSMB-HYMI
RETURN RETURN RETURN
RETURN
(%)
(%)
(%)
(%)
Jan-96
Feb-96
Mar-96
Apr-96
May-96
Jun-96
Jul-96
Aug-96
Sep-96
Oct-96
Nov-96
Dec-96
TOTAL 1996 RETURN
100.96
103.79
106.69
106.68
111.88
116.08
117.68
116.34
117.26
119.24
119.69
119.56
0.96
2.80
2.79
0.01
4.87
3.76
1.38
1.14
0.79
1.69
0.37
0.10
19.56
2.51
7.75
4.54
1.98
1.28
3.31
1.09
0.24
2.11
1.90
8.62
5.10
10.21
3.40
0.93
0.96
1.47
2.58
0.38
4.42
2.11
5.63
2.76
7.56
1.98
22.96
1.47
0.62
0.50
0.03
0.56
0.77
0.65
1.04
2.34
1.15
1.92
0.79
11.29
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
TOTAL 1997 RETURN
121.81
124.73
125.69
117.36
115.10
119.23
119.77
121.20
124.12
124.42
123.90
121.65
1.88
2.40
0.77
6.63
1.93
3.60
0.45
1.19
2.41
0.24
0.41
1.82
1.75
1.54
1.44
1.74
2.13
0.11
0.57
0.23
2.27
1.64
0.44
1.15
2.58
1.58
6.25
0.78
4.11
5.97
6.88
4.48
7.96
5.60
5.48
3.34
4.63
1.72
34.36
0.75
1.70
1.03
0.71
2.02
1.69
2.29
0.25
1.75
0.80
0.51
1.05
13.18
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
1998 YTD
121.2
120.2
122.2
127.3
130.3
129.0
128.9
120.8
113.4
104.5
110.2
109.2
0.38
0.84
1.68
4.19
2.33
0.99
0.05
6.26
6.16
7.88
5.44
0.85
10.22
0.00
1.96
0.82
0.19
2.27
0.28
1.15
18.25
11.21
9.48
7.32
2.43
26.91
1.11
7.21
5.12
1.01
1.72
4.06
1.07
14.46
6.41
8.13
6.06
5.76
28.58
2.26
0.68
1.08
0.54
0.27
0.22
0.80
6.70
1.23
1.38
5.02
0.07
3.60
Jan-99
Feb-99
Mar-99
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
113.1
112.0
110.1
113.3
115.5
118.5
120.0
114.2
115.7
112.7
3.59
1.01
1.70
2.91
1.92
2.58
1.31
4.80
1.29
2.64
0.22
3.91
5.07
11.15
1.14
1.00
3.75
4.96
5.33
7.13
4.18
3.11
4.00
3.87
2.36
5.50
3.12
0.50
2.74
6.33
1.50
0.84
0.85
2.09
1.57
0.22
0.22
1.19
0.76
0.68

PUBLIC
BANK
PUBLIC
BOND
LOAN
S&P
SSMB-HYMI
RETURN
INDEX
(%)
(%)
(%)
(%)
MONTH
Nov-99
Dec-99
1999 YTD
110.1
109.9
2.31
0.12
0.65
6.75
0.92
11.34
2.04
5.89
20.98
1.57
0.84
1.74
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00
2000 YTD
113.9
111.3
105.2
106.3
106.2
104.7
105.1
104.4
105.3
104.5
103.1
102.7
3.64
2.27
5.48
1.02
0.08
1.46
0.38
0.65
0.86
0.71
1.39
0.39
6.59
3.50
1.01
2.86
5.64
5.46
1.16
0.32
3.96
0.64
6.91
10.10
6.42
33.09
5.02
1.89
9.77
3.01
2.05
2.47
1.56
6.21
5.28
0.42
7.88
0.49
9.11
0.83
0.24
2.03
0.40
1.39
2.25
1.09
0.74
1.07
2.96
4.09
2.04
5.68
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
2001 YTD
106.893
114.062
114.711
112.063
114.349
115.800
115.541
119.065
116.693
114.671
115.957
116.988
4.11
6.71
0.57
2.31
2.04
1.27
0.22
3.05
1.99
1.73
1.12
0.89
13.94
4.55
5.90
5.43
2.57
7.20
4.96
1.17
2.04
7.84
5.35
1.57
0.52
17.47
3.546
9.112
6.332
7.765
0.671
2.433
0.985
6.254
8.072
1.909
7.670
0.878
11.87
6.740
1.190
1.820
1.470
1.610
2.750
1.880
1.370
7.200
3.320
3.800
0.640
5.44
Table A.3: Combined Altman-NYU Salomon Center Defaulted Public Bond and Bank Loan
Indexes (December 1995 100)
Date
Dec-95
Jan-96
Feb-96
Mar-96
Apr-96
May-96
Jun-96
Jul-96
Aug-96
Sep-96
Oct-96
Nov-96
Dec-96
Monthly level
Return (%)
100.0
101.8
107.1
111.1
112.2
115.7
119.8
119.8
119.0
120.8
123.0
118.3
115.6
1.80
5.21
3.71
1.04
3.13
3.53
0.02
0.67
1.47
1.80
3.80
2.26
Year-to-date Return (%)

1.80
7.09
11.05
12.23
15.74
19.82
19.84
19.04
20.79
22.97
18.29
15.62
Date
Monthly level
Return (%)
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
116.2
118.6
119.9
114.6
113.7
115.4
115.6
117.5
119.8
119.7
118.7
116.1
0.48
2.04
1.15
4.39
0.85
1.51
0.19
1.72
2.01
0.13
0.79
2.22
0.48
2.54
3.71
0.83
1.68
0.19
0.08
1.64
3.67
3.54
2.72
0.44
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
115.9
116.3
117.8
121.0
123.8
123.0
123.6
109.2
100.0
91.5
97.2
95.7
0.20
0.38
1.32
2.67
2.31
0.66
0.51
11.67
8.37
8.52
6.20
1.51
0.20
0.18
1.50
4.21
6.61
5.91
6.45
5.97
13.83
21.18
16.29
17.55
Jan-99
Feb-99
Mar-99
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
97.6
98.4
99.2
105.5
105.9
107.7
110.4
105.0
103.3
98.8
100.4
100.0
1.97
0.78
0.84
6.31
0.45
1.66
2.49
4.87
1.58
4.34
1.59
0.43
1.97
2.77
3.63
10.16
10.66
12.49
15.29
9.67
7.94
3.26
4.90
4.45
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00
103.6
101.7
97.3
95.6
93.4
93.1
93.1
91.3
91.4
89.1
85.7
84.2
3.59
1.78
4.31
1.80
2.26
0.41
0.10
2.02
0.13
2.51
3.77
1.84
3.59
1.74
2.64
4.39
6.55
6.93
6.85
8.73
8.61
10.90
14.26
15.84
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Jun-01
87.7
93.4
92.3
90.1
93.4
95.6
4.21
6.50
1.19
2.39
3.65
2.42
4.21
10.99
9.67
7.05
10.96
13.64

Date
Jul-01
Aug-01
Sep-01
Oct-01
Nov-01
Dec-01
Monthly level
Return (%)
95.8
98.4
94.9
95.3
96.5
97.2
0.18
2.73
3.61
0.45
1.27
0.77

13.84
16.95
12.73
13.24
14.68
15.56
Non-technical Summary
The size of the defaulted and distressed debt market reached record
levels of $680 billion face value and almost $400 billion market value at
the end of 2001. The default rate in the US high yield bond market
approached 10 per cent for the first time since 1991 and the outlook was
for an even higher rate in 2002. Indeed, both the size of the vulture
investment market and the high yield bond default rate did break all
records in 2002 before declining in early 2003. Returns for investors in
defaulted bonds and bank loans were quite good in 2001 despite a
widening in the supply and demand for the securities.

Market Size and Investment Performance of Defaulted Bonds and Bank Loans: 1987-2001

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Market Size and Investment Performance of Defaulted Bonds and Bank Loans: 1987-2001

Enviado por

Direitos autorais:

Formatos disponíveis

Economic Notes by Banca Monte dei Paschi di Siena SpA, vol. 32, no. 2-2003, pp.

Market Size and Investment Performance of

supply and demand elements of defaulted and stressed securities, as well as

# Banca Monte dei Paschi di Siena SpA, 2003.

The A-NYU Index includes the securities of firms at various stages of

Table 2: Altman-NYU Salomon Center Defaulted Bond Index Comparison of Returns

S&P 500 Stock

Defaulted debt securities outperformed the total return on the S&P

4. Fifteen-Year Comparative Performance

# Banca Monte dei Paschi di Siena SpA, 2003.

5. Diversification Attributes: Risky Asset Returns Correlations

Altman-NYU Salomon Center Defaulted Bond Index

# Banca Monte dei Paschi di Siena SpA, 2003.

distressed securities with different styles including active, semi-active and

# Banca Monte dei Paschi di Siena SpA, 2003.

6. Defaulted Bank Loan Performance

Table 5: Altman-NYU Salomon Center Bank Loan Index Comparison of Returns

S&P 500 Stock

Table 6: Correlation of Altman-NYU Salomon Center Indexes of Defaulted Loans with

# Banca Monte dei Paschi di Siena SpA, 2003.

7. Correlation in Exceptional Months

8. Combined Bond and Bank Loan Index

9. Size of the Defaulted and Distressed Debt Market

S&P 500 Stock

Salomon Smith Barney

Par value outstanding* Par value defaults Default rates (%)

# Banca Monte dei Paschi di Siena SpA, 2003.

10. Bank Loan Recovery Study

Figure 3: Size of the Defaulted and Distressed Debt Market 19902001.

# Banca Monte dei Paschi di Siena SpA, 2003.

Source: Altman NYU Salomon Center Defaulted Debt Index

Source: Altman NYU Salomon Center Defaulted Debt Index

# Banca Monte dei Paschi di Siena SpA, 2003.

As expected, these results compare favourably with the recovery rates

Senior secured loans

Standard deviation (%)

Senior secured bank loans

Senior secured bonds

Total (all bonds)

# Banca Monte dei Paschi di Siena SpA, 2003.

# Banca Monte dei Paschi di Siena SpA, 2003.

# Banca Monte dei Paschi di Siena SpA, 2003.

# Banca Monte dei Paschi di Siena SpA, 2003.

Table A.1: Continued

# Banca Monte dei Paschi di Siena SpA, 2003.

# Banca Monte dei Paschi di Siena SpA, 2003.

Table A.1: Continued

# Banca Monte dei Paschi di Siena SpA, 2003.

Table A.2: Altman-NYU Salomon Center Index of Defaulted Bank Loans

# Banca Monte dei Paschi di Siena SpA, 2003.

Table A.2: Continued

# Banca Monte dei Paschi di Siena SpA, 2003.

Year-to-date Return (%)

Year-to-date Return (%)

# Banca Monte dei Paschi di Siena SpA, 2003.

Table A.3: Continued

Year-to-date Return (%)

# Banca Monte dei Paschi di Siena SpA, 2003.

Você também pode gostar