Recovery Rates in the Leasing Industry

by Mathias Schmit of Leaseurope, and
Julien Stuyck of Leaseurope

September 2002

Abstract: This paper is devoted to a range of issues concerning leasing recovery rates and is the first study based on such a wide set of data providing empirical results at the European market level. We have calculated recovery rates from a database comprising 37,259 defaulted lease contracts issued between 1976 and 2002 by 12 major European financial institutions. The recovery rates are estimated for three types of assets and are segmented according to the maturity and the age of the lease contracts. Furthermore, we compare our results with recovery rates for bonds and bank loans presented by seniority class. We have also tested the independence of recovery rates from economic conditions. This study provides useful information on the current Basel Capital Proposal, which considers recovery rates as a major input into its advanced Internal Rating-Based Approach.

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