CLN - Toolbox

General Definition

Credit Linked Notes (CLN) are structured securities whose payments of coupons and notional depend on credit events of one or more reference entities.

Economic Definition

Economically, buying a CLN is equivalent to buying a bond of the CLN issuer and entering into a credit default swap (CDS) based on the reference entities. Usually, the investor is protection seller in the swap agreement.

Yield

To compensate for the additional credit risk the investor achieves a significantly higher coupon, compared to a bond of the same issuer with the same maturity.