LGD Calculator - Loss Given Default Risk

Loss given default is the share of exposure that a lender or investor expects to lose after a default, once recoveries are collected and discounted. Credit-risk teams, workout desks, and students of expected loss use LGD beside probability of default and exposure at default because expected loss is roughly PD times EAD times LGD. The LGD calculator combines a cash recovery, optional collateral recovery, time to cash, and a discount rate so the loss is stated in present-value terms rather than as an undiscounted hope. Total recovery is the cash recovery amount plus collateral value times the recovery rate. Discounted recovery divides that total by (1 + discount rate) raised to months divided by 12, which is annual compounding with a fractional year. Loss amount is EAD minus discounted recovery. LGD is that loss divided by EAD. The discounted recovery rate is the complement: discounted recovery divided by EAD. If recoveries exceed EAD after discounting, LGD can be negative, which means the present-value recovery more than covers the exposure on these inputs. Use the LGD calculator to compare an unsecured workout with a collateralized loan, to see how a longer liquidation clock raises economic LGD, and to test a higher discount rate when funding costs or workout uncertainty rise. A facility with strong collateral can still show a material LGD if enforcement takes two years and haircuts are large. Basel and internal-ratings models often distinguish downturn LGD from long-run LGD; this page is a single-scenario present-value estimate, not a regulatory capital engine. Collateral value should be the amount you believe can be realized, and the recovery rate the fraction of that value you expect after fees, court costs, and fire-sale discounts. Do not double-count the same cash in both recovery amount and collateral. EAD should match the drawn exposure plus any add-on you use in the credit file. The discount rate is an economic rate, not the contractual loan coupon, unless you deliberately want to discount at the note rate. Legal priority, guarantees, netting, and insurance recoveries can change the picture. The LGD calculator does not apply floors, downturn multipliers, or incomplete-recovery paths used in advanced IRB models. Record the workout timeline and haircut you assumed, then re-run when collateral appraisals or court timing change. For a credit-approval or capital decision, reconcile the result to policy LGD and to counsel on enforceability.