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Fitch Ratings Definitions

Recovery Ratings

Recovery Ratings are assigned to selected individual securities and obligations. These currently are published for most individual obligations of corporate issuers with IDRs in the 'B' rating category and below, and for most distressed or defaulted structured finance obligations rated "CCC" or below.

Among the factors that affect recovery rates for securities are the collateral, the seniority relative to other obligations in the capital structure (where appropriate), and the expected value of the company or underlying collateral in distress.

The Recovery Rating scale is based upon the expected relative recovery characteristics of an obligation upon the curing of a default, emergence from insolvency or following the liquidation or termination of the obligor or its associated collateral. For structured finance, Recovery Ratings are designed to estimate recoveries on a forward-looking basis while taking into account the time value of money.

Recovery Ratings are an ordinal scale and do not attempt to precisely predict a given level of recovery. As a guideline in developing the rating assessments, the agency employs broad theoretical recovery bands in its ratings approach based on historical averages, but actual recoveries for a given security may deviate materially from historical averages.

RR1: Outstanding recovery prospects given default
'RR1' rated securities have characteristics consistent with securities historically recovering 91%–100% of current principal and related interest.

RR2: Superior recovery prospects given default
'RR2' rated securities have characteristics consistent with securities historically recovering 71%–90% of current principal and related interest.

RR3: Good recovery prospects given default
'RR3' rated securities have characteristics consistent with securities historically recovering 51%–70% of current principal and related interest.

RR4: Average recovery prospects given default
'RR4' rated securities have characteristics consistent with securities historically recovering 31%–50% of current principal and related interest.

RR5: Below average recovery prospects given default
'RR5' rated securities have characteristics consistent with securities historically recovering 11%–30% of current principal and related interest.

RR6: Poor recovery prospects given default
'RR6' rated securities have characteristics consistent with securities historically recovering 0%–10% of current principal and related interest.


Limitations of the Recovery Ratings Scale

Specific limitations relevant to the Recovery Ratings scale include:

  • The ratings do not predict a specific percentage of recovery should a default occur.
  • The ratings do not opine on the market value of any issuer's securities or stock, or the likelihood that this value may change.
  • The ratings do not opine on the liquidity of the issuer's securities or stock.
  • The ratings do not opine on any quality related to an issuer or transaction's profile other than the agency's opinion on the relative loss severity of the rated obligation should the obligation default.

    • Recovery Ratings, in particular, reflect a fundamental analysis of the underlying relationship between financial claims on an entity or transaction and potential sources to meet those claims. The size of such sources and claims is subject to a wide variety of dynamic factors outside the agency's analysis, which will influence actual recovery rates.

    Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the reader's convenience. Readers are requested to review the section Understanding Credit Ratings — Limitations and Usage for further information on the limitations of the agency's ratings.