Credit Linked Note (CLN)
A security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors.
CLNs are created through a Special Purpose Company (SPC), or trust, which is collateralized with AAA-rated securities. Investors buy securities from a trust that pays a fixed or floating coupon during the life of the note. At maturity, the investors receive par unless the referenced credit defaults or declares bankruptcy, in which case they receive an amount equal to the recovery rate. The trust enters into a default swap with a deal arranger. In case of default, the trust pays the dealer par minus the recovery rate in exchange for an annual fee which is passed on to the investors in the form of a higher yield on the notes. Investopedia Says:
Under this structure, the coupon or price of the note is linked to the performance of a reference asset. It offers borrowers a hedge against credit risk, and gives investors a higher yield on the note for accepting exposure to a specified credit event. Related Terms:
Credit
Credit Default Insurance
Credit Derivative
Default Risk
Equity Linked Note - ELN Construction Loan Note (CLN)
A short-term obligation in the form of a note, used for the funding of construction projects such as housing developments. In most cases, the note issuers will repay the note obligation by issuing a longer term bond and using the proceeds from the bond to pay back the note. Investopedia Says:
This type of financing is most often seen at the municipal level: for example, a large city might use a construction loan note to finance a large housing project to meet the demands of its growing population. Related Terms:
Bond
Bond Anticipation Note - BAN
Combination Loan
Municipal Bond
Note
Obligation
Revenue Anticipation Note - RAN
Short Term
Tax Anticipation Note - TAN |