CREDIT LINKED NOTE - CLN
Security with a credit default swap, which allows a user to transfer a particular credit risk to investors. CLNs are designed through a Special Purpose Company (SPC) or trust that is collateralized with AAA-trading securities. Investors purchase securities from a trust that pays off fixed or floating coupon over the lifespan of a note. Upon reaching maturity, investors receive par unless that credit declares bankruptcy or defaults. The trust engages into a default swap with a deal arranger. Should the trust default, it pays the dealer par less recovery rate in return for annual fee passed on to investors through higher yield on the notes.
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