Limited Recourse Debt

A A A

DEFINITION

A debt in which the creditor has limited claims on the loan in the event of default. Limited recourse debt sits in between secured bonds and unsecured bonds in terms of the backing behind the loan. Often a limited recourse debt contract is structured so that the debt transitions to unsecured, or "non-recourse", debt pending the completion of a specific event. That event may be the completion of a project or the establishment of a specific revenue stream for which the debt was issued.

INVESTOPEDIA EXPLAINS

For example, terms for limited recourse debt for a large project such as a power plant could mean that a creditor is guaranteed to receive 25% of the principal in the event of a default up until completion of the power plant.

Limited recourse debt will typically pay a lower rate than standard issue unsecured bonds because of its relative safety. Claims on limited recourse debt sit above both stockholders and unsecured bondholders in terms of payout hierarchy.


RELATED TERMS
  1. Non-Notification Loan

    A full-recourse loan that is securitized by accounts receivable (AR). Customers ...
  2. Non-Recourse Expense

    An accounting term that sometimes refers to the cost of absorbing losses on ...
  3. Full Recourse Debt

    A guarantee that no matter what happens, the borrower will repay the debt. Typically ...
  4. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  5. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  6. Non-Recourse Finance

    A loan where the lending bank is only entitled to repayment from the profits ...
  7. Project Finance

    Defined by the International Project Finance Association (IPFA) as the following: ...
  8. Secured Debt

    Debt backed or secured by collateral to reduce the risk associated with lending. ...
  9. Safe Asset

    Assets which, in and of themselves, do not carry a high likelihood of lawsuit ...
  10. Treasury Direct

    The online market where investors can purchase federal government securities ...
Related Articles
  1. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  2. Corporate Bonds: An Introduction To ...
    Bonds & Fixed Income

    Corporate Bonds: An Introduction To ...

  3. What is the difference between a non-recourse ...
    Investing

    What is the difference between a non-recourse ...

  4. Has Stock Bias Affected Your ETF Asset ...
    Bonds & Fixed Income

    Has Stock Bias Affected Your ETF Asset ...

  5. Buying bonds at a premium? Note these ...
    Bonds & Fixed Income

    Buying bonds at a premium? Note these ...

  6. Is Ukrainian Debt Worth a Look?
    Bonds & Fixed Income

    Is Ukrainian Debt Worth a Look?

  7. Will The High Times In High Yield Continue? ...
    Bonds & Fixed Income

    Will The High Times In High Yield Continue? ...

  8. Unconstrained Investing: What It Is ...
    Bonds & Fixed Income

    Unconstrained Investing: What It Is ...

  9. How To Earn The Most From CDs When Interest ...
    Bonds & Fixed Income

    How To Earn The Most From CDs When Interest ...

  10. Why Now May Be The Right Time For Emerging ...
    Bonds & Fixed Income

    Why Now May Be The Right Time For Emerging ...

comments powered by Disqus
Hot Definitions
  1. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  2. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  3. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  4. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  5. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  6. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Trading Center