|This thesis covers defaults in the Norwegian high yield bond market between January 1st 2005 and June 30th 2010. To a large extent, our task has been to register and document the details of all defaults that occurred within this timeframe and to use this information to compile a complete set of recovery rates.
Our findings show that security does not affect recovery rates in the way one would assume. The average recovery is actually higher for defaulted senior unsecured issues than senior secured ones. We have also found a range of factors that affect the recovery of a defaulted bond. Briefly put, bonds most likely to yield low recovery in a default were issued by partly financed start-up companies that built a single asset with a proprietary design.
Despite the fact that a lot of the bonds issued shortly before the financial crisis have defaulted, we have found that this market has many traits of a well functioning one. Recovery rate levels are comparable to what has been found in international studies. Companies tend to get chances to solve their problems before they end up in bankruptcy. Additionally, we have seen that bondholders act together as a group rather than fighting each other.