Definition of 'Full Recourse Debt'
A guarantee that no matter what happens, the borrower will repay the debt. Typically with a full recourse loan no occurrence, such as loss of job or sickness, can get the borrower out of the debt obligation. In this situation, if there is no collateral for the loan, the lender can go after the borrowers personal assets to collect if the loan is defaulted. Investopedia explains 'Full Recourse Debt'
In contrast, a limited recourse loan would only allow the lender to take assets that are listed as collateral in the signed loan agreement. Also, a non-recourse loan would have no collateral and the lender would only be able to take the asset that is being financed, such as a home in a non-recourse mortgage.
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Definition of 'Non-Recourse Debt'
A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral, but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan. Investopedia explains 'Non-Recourse Debt'
These types of projects are characterized by high capital expenditures, long loan periods and uncertain revenue streams. Analyzing them requires a sound knowledge of the underlying technical domain as well as financial modeling skills.
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Definition of 'Limited Recourse Debt'
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 'Limited Recourse Debt'
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.
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