Recovery Rates 

The recovery rate is an estimate in percentage for the part of a receivable, for which there is no collateral, but which can still be recovered in the event of a default. This part of the assets of the bankrupt, which can be used to cover the receivables, reduces the attributable amount.

Prerequisites

      1.      In Customizing under: ® Attributable Amount Determination ® Edit Determination-Procedure-Specific Settings you have to assign formulas, which take recovery rates into account, to the respective combination of determination procedure and default risk rule.

      2.      In Customizing under: ® Basic Settings ® Definitions ® Define Recovery Rate Class you need to have created a recovery rate class.

It is helpful to the user if you choose descriptions that refer to the percentage rate of the recovery rate (for example, R0010 for 10%).

      3.      In Customizing under: ® Attributable Amount Determination ® Edit Recovery Rates you have to have stored the relevant percentages.

You do so for each valuation factor determination, recovery rate class, and date.

Features

The system calculates the relevant recovery rate by means of the financial object. You need to have either stored a recovery rate class in the financial object, or assigned a default risk rule, by means of which the system can then find a default recovery rate. You define in Customizing how the system is to use the default risk rule to determine the recovery rate class by choosing: ® Basic Settings ® Definitions ® Define Default Risk Rule.

·       No default setting Þ You need to store the recovery rate directly in the financial object.

·       From default risk rule Þ The default recovery rate is also stored in the Recovery Rate Class field.

·       From valuation factor determination Þ The system checks the recovery rate basis stored in Customizing under:® Basic Settings ® Definitions ® Define Valuation Factor Determination.

If the business partner rating is defined as the recovery rate basis, then the system calculates the recovery rate using the rating of the business partner. The rating is either determined from the business partner master data or entered in the financial object of an individual transaction. If it is entered in the financial object, then this value overrides the rating from the business partner data.

You assign the rating to the recovery rate class in Customizing under SAP Banking ® SEM Banking ® Default Risk and Limit System ® Basic Settings ® Assignments ® Assign Credit Rating or Assignments to the Country. For CFM this activity is found under Corporate Finance Management ® Credit Risk Analyzer ® Basic Settings ®Assignments ® Assignments to Recovery Rate ® Assign Credit Rating.

If no recovery rates are defined in the system, even though they are required for attributable amount determination, the recovery rate is set to 0.