Special type of credit derivative. These are bonds issued by the protection buyer (floating rate payer; usually by a special purpose vehicle – also known as special purpose vehicle [SVP] and conduit [conduit]), but where the full nominal amount is only paid out at the end of the term if the agreed credit event – usually by reference to the master agreements of the International Swaps and Derivates Association – has not occurred by then. – In addition to the credit risk of the reference asset, the fixed rate payer also assumes the credit risk of the issuer. In most cases, CLNs are issued in different tranches, which are rated accordingly by rating agencies. – See derivatives transactions clearing obligation, derivatives transactions reporting obligation, first loss tranche, credit derivative, credit securitization, originate-to-distribute strategy, senior tranche, single master liquidity conduit, securitization, securitization structure. – Cf. Deutsche Bundesbank Monthly Report of April 2004, p. 31 (also explanatory overview there), BaFin Annual Report 2003, pp. 21 f., p. 126, BaFin Annual Report 2007, p. 80 (CLNs are included in the new investment regulation for insurance companies) and the respective BaFin Annual Reports, ECB Monthly Report of September 2005, p. 21 (explanatory overview; definitions).
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