Recovery rate

(1) The amount that a creditor would receive in final satisfaction of the claims on a defaulted credit. Common practice is to express this as a percentage of the debt's par value. An alternative definition, which is commonly in the reduced form models, is to state recovery as a percentage of market value. This definition is more tractable, but is not well aligned with creditor's true claims in default.
(2) Estimate of percentage of par value that bondholders will receive after a credit event. CDS for investment grade bonds generally assume a 40% recovery rate when valuing CDS trades. However, CDS for lower rated bonds are more dynamic and often reflect lower estimated recovery rates.