Credit Linked Note (CLN)

A CLN is an interest-bearing structured note with embedded credit derivatives whereby the investor in the notes earns a spread for taking credit risk of the reference entity / entities. The CLN issuer sells credit protection on a reference entity or portfolio of reference entities in return for CDS premiums, and issues a CLN of matched size and maturity to the notional CDS contracts. The CLN owner is paid from CDS premium flow. If no credit event is triggered during the life of the CLN, owners get their principal back. If there is a credit event, the owner is exposed to losses dependent on the debt recovery process.