Credit-Linked Note (CLN)

A credit-linked note (CLN) is a security with an embedded credit default swap permitting the issuer to shift specific credit risk to credit investors. Credit-linked notes are created through a special purpose vehicle (SPV), or trust, which is collateralized with AAA-rated securities. Investors buy credit-linked notes from a trust that pays a fixed or floating coupon during the life of the note. In return for accepting exposure to specified credit risks, investors who buy credit-linked notes typically earn a higher rate of return compared to other bonds.