What is a recovery bond?

A recovery bond is designed to guarantee performance after a default has occurred. It serves as a financial assurance that obligations will still be met, even when a party defaults on their commitments. In the context of surety bonds, this type of bond is critical as it protects the interests of the involved parties by ensuring that contractual obligations are fulfilled, either by the principal or by the surety backing the bond.

The emphasis on performance after a default indicates that recovery bonds are particularly relevant in situations where one party fails to meet their contractual responsibilities, providing a safety net and instilling trust in business transactions. This function is essential in various industries where risks of default are significant, and it helps to maintain stability in contractual agreements.

Other types of bonds mentioned in the choices focus on different functions, such as financing (short-term loans or property bonds) or specific legal proceedings (court cases), which do not encompass the broader assurance of performance post-default that recovery bonds provide.