Credit Linked Notes

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

Credit Linked Notes

Postby swarnendupathak » Fri Oct 25, 2013 4:24 pm

Is my understanding CLN is correct? I have understood the following steps for creating CLN:
1. Investor A purchases Bond & purchases CDS for protection from default risk.
2. CDS seller B sales CDS to Investor A & gets regular premium from A.
3. Now CDS seller B issue CLN to CLN investors, say C & gets Cash in return from them.

So, as per the above steps CLN seller is a protection seller & reference assets for CLN is a bond that have been purchased by investor A. Hence if any credit event happen with the bond issuer then the investor A will trigger for payment from B & in turn B will get the defaulted bond from A which will be finally transferred to CLN investors. Please state is my understanding is right or wrong??? as many books it is mentioned that CLN issuer is a protection buyer.

Thanks in advance for ur reply.

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Credit Linked Notes

Postby pradeeppdy » Tue Oct 29, 2013 6:35 am

yes this is correct CLN is a kind of insurance. Here finally defaulted amount should be bear by CLN investors so it is a protection to buyer.

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Credit Linked Notes

Postby pradeeppdy » Sat Apr 05, 2014 9:32 am

Yes , CLN is is a kind of default protection to the buyer .


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