A Guide for Professional Investors: Credit Linked Notes (CLNs)

What is a Credit Linked Note?

A Credit Linked Note (CLN) is a type of structured product that combines a bond with an underlying credit risk. It allows issuers to release capital from underlying illiquid strategies or assets.

Who uses Credit Linked Notes?

CLNs are used by companies wishing to raise debt finance, without the extensive cost of traditional fund or bonds avoiding large bills from legal advisors.

Cost-effective, institutional grade structures are used to syndicate professional investors who are providing debt capital to support a businesses’ growth plans.

They are perfect for brokers sitting in between deals, with short-time to market and bespoke structures available.

Above all, they are ideal for investors, who can place the investment order through their private banks and investment platforms, using the ISIN code and Bloomberg ticker.

How do Credit Linked Notes work?

Credit Linked Notes are issued using segregated cell compartments under a base private placement memorandum or platform. A segregated cell compartment has its own bespoke offering document for each individual borrower and is recognised as its own bankruptcy remote legal entity

Borrowers can design the terms of their investment including:

• Use of proceeds
• Returns
• Term/Maturity
• Size
• Currency
• Repayment Profile (Bullet, amortising)
• Security Allocation
• Coupon Payment Frequency

Each cell then becomes its own security and comes with its own ISIN available for distribution to professional investors traded via EuroClear and Clearstream. The tradable security is managed externally by specialist counterparties as outlined below…

Key Parties Involved:

• Borrower: the entity or special purpose vehicle that is raising capital
• Issuer: the Credit Linked Note segregated cell vehicle
• Administrator (Regulated entities): the party conducting AML / KYC, bond holder onboarding, administrative tasks of the issuance
• Paying Agent (Regulated entities): accepting payments / subscriptions of the note, ensuring payment of coupon
• Calculation Agent: determining the coupon and capital payments applicable to note holders
• Arranger: the point of contact between the borrower and other parties, structuring and advising on the deal
• Distributor: investor relations relating to the issuance

Example Structure:

Credit Linked Notes Vs Other Investment Structures

	Actively Managed Certificates (AMCs)	Credit Linked Notes (CLNs)	Loan Notes	Real Estate Investment Trusts (REITs)	Funds (Mutual, Hedge, PE)
Definition	Structured product tracking liquid underlying's managed by an advisor	Structured product where returns are linked to an underlying corporate entity or asset portfolio	Debt instrument evidencing a loan made to a borrower	Investment vehicle owning income-generating real estate	Pooled investment vehicles with various strategies
Best For	Trading Strategies	Private Credit	Small bilateral deals	Larger real estate portfolios	Multi-strategies
Risk Level	Varies - depends on manager strategy	Credit risk of reference entity or portfolio	Credit risk of borrower	Market & property specific risks	Depends on fund type - can range from low to high
Returns	Varies - income, capital gains, alpha	Generally fixed or predictable	Generally fixed or predictable	Dividends + capital appreciation	Varies - income, capital gains, alpha
Liquidity	Moderate	Lower to Moderate	Lower	Moderate to Higher	Moderate to Higher
Regulatory	Lower to Medium	Lower to moderate	Lower	Higher	Higher
Cost	Moderate	Lower	Lower	Higher	Higher

Why Do Investors Use CLNs?

CLNs are used strategically in structured and private credit portfolios. Typical applications include:

• Yield Enhancement
  • Investors earn premium returns in exchange for accepting defined credit risk—ideal in low-yield environments.
• Synthetic Exposure
  • Gain access to credit risk from non-bank lenders, private debt, or emerging markets without direct origination.
• Transparency
  • Simple Term Sheet & Documentation, Transparent Security Agreement and Standardised Issuance Documentation
• Structuring Flexibility
  • CLNs can be designed to match investor appetite—fixed or floating rate, short or medium duration, senior or subordinated exposure.
• Access
  • Professional investors can get access to institutional-grade credit opportunities with lower ticket sizes. They are able to invest via their existing private banks or platform.

What Are the Risks?

While CLNs offer attractive features, they come with important risks:

Important:

Losses can occur, investors must ensure they understand the credit risk of the reference entity or portfolio. Always understand the reference pool and legal documentation.

CLNs in Private Credit Strategies

Conclusion: Why Credit Linked Notes Matter

As private credit markets grow and yield becomes harder to find in traditional assets, Credit Linked Notes offer a flexible, sophisticated solution. They allow investors to access structured credit exposure with tailored terms—ideal for those with the knowledge, scale, and appetite to handle complexity.

Whether used to gain access to a niche borrower, enhance returns, or diversify risk away from traditional fixed income, CLNs are becoming an increasingly important tool in the portfolios of professional investors.