Resource Logo

Hello, you are using an old browser that's unsafe and no longer supported. Please consider updating your browser to a newer version, or downloading a modern browser.

Receive Updates
Resource Arrow Back to all
Date: January 31, 2018

Fixed-income Investors Must Consider Default Risk [Video]

Created with Sketch. Run Time: 1:28
Michael Terwilliger Portfolio Manager Resource Credit Income Fund
While default rates remain low by historical standards, investors should consider focusing on assets that offer an additional layer of default protection.

Investors generally look to fixed-income assets for potential risk-adjusted income. And in today’s rising interest rate environment, investors may be looking at floating-rate assets to help protect their portfolios.

Once the discussion turns to these assets, investors must consider default risk. Default risk is the risk that the borrower will be unable to repay all their interest and all of their principal. If the borrower files for bankruptcy, investors could lose the potential income stream from interest payments, and may not recover their principal. While default rates remain low by historical standards, investors should consider focusing on assets that offer an additional layer of default protection.

For example, senior secured loans enjoy a senior position in the capital structure. They are generally secured by a borrowers’ assets like property and equipment. In the unlikely event of default, these loans have the first claim on the borrower’s assets, making them the least risky investment in the capital structure.

Historical capital recovery rates illustrate this point. Over the last three decades, capital recovery rates have generally been correlated with priority of claim. The higher the priority, the higher the average rate of recovery.

Recovery rates for senior secured loans have been historically much higher than those of more-junior and unsecured loans.

At Resource, we are always looking to provide innovative solutions that meet the needs of today’s investment environment. Fixed-income investors searching for new ways to generate income as rates rise may want to consider senior secured assets to potentially help preserve principal.

Looking for ways to support your fixed-income strategy?

This information is educational in nature and does not constitute a financial promotion, investment advice, or an inducement or incitement to participate in any product, offering or investment. It is not intended to be used as a tool to determine your specific financial situation, tax status, investment objectives, investment experience, suitability for any specific investment, risk tolerance or investment profile. Resource is not adopting, making a recommendation for or endorsing any investment strategy or particular security. The materials included herein are the property of Resource and may not be repurposed in a separate likeness without the express written consent of Resource.

Receive Updates

* These fields are required.

Emails and white papers can only be sent to financial advisors in Resource’s broker-dealer partnership network.

Resource is the marketing name for Resource Real Estate, LLC, Resource Alternative Advisor, LLC, and their affiliates. Resource may distribute certain products through Resource Securities LLC, a wholly owned broker/dealer, Member FINRA/SIPC

All statements and information other than statements of historical fact included on this website regarding strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. When used on this website, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. You should not place undue influence on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make on this website are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved because of the number of risks and uncertainties, many of which are beyond our control, including but not limited to uncertainties concerning the properties being operated and sold or refinanced, leverage and meeting debt service obligations, operating properties in different locations throughout the U.S., general, market or business conditions and changes in laws or regulations. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. To check the background of Resource Securities LLC or any registered individual, please go to FINRA’s BrokerCheck.