Introduction

Credit Linked Notes (CLNs) are gaining popularity among professional and high-net-worth investors seeking enhanced returns in a low-yield world. They grant access to niche, alternative credit strategies spanning a range of asset classes. Yet, as with any financial instrument, they’re not without risk—and much of the recent criticism stems from misunderstanding, oversimplification, or a failure to distinguish between professional and retail market access.

In this insight, we address frequently asked questions about credit risk and Credit Linked Notes to help investors make informed, rational decisions.

What is a Credit Linked Note (CLN)?

A Credit Linked Note is a structured credit instrument that links the investor’s return to the performance of a reference credit—often a private loan book, a corporate borrower, or even a pool of receivables.

Instead of investing in a fund or a corporate bond, CLNs give you direct, contractual exposure to credit risk through a regulated note issuance, typically structured through Luxembourg and settled on Euroclear or Clearstream.

Think of it as a semi-securitisation: the issuer borrows against a portfolio of existing loans or receivables, and the note allows them to release capital while transferring credit exposure to the investor. For the investor, this means enhanced yield and visibility on underlying assets.

Is a CLN risky?

Yes—and that’s the point - but with caveats.

CLNs are not capital-guaranteed, and they do carry credit risk. That means the investor assumes the risk that the borrower (or underlying reference asset) may default.

However, this risk is typically priced in via an enhanced yield or fixed coupon. In other words, you’re being compensated for the risk you’re taking.

To suggest that a CLN is risky therefore bad is to miss the entire function of the instrument: pricing risk for return.

Why not just invest in a bond or mutual fund?

Traditional bonds may offer lower yields and less customisation. Mutual funds dilute exposure across a wide pool of assets but can come with opaque fees, unclear exposure, and limited access to private credit.

CLNs, by contrast, can be:

  • Custom-structured to investor preference (duration, coupon, security)
  • Backed by real-world assets (e.g. loan books, receivables, collateral)
  • Accessible through custodians and private banks
  • Designed for professional portfolios, with institutional-grade documentation

Bonds and mutual funds have their place in every portfolio; there is no questioning this. However, professional and institutional investors, those with greater risk tolerance and in need of reduced volatility, seek diversification through private market investments, namely alternative credit strategies - the type of strategies CLNs are used to securitise and price.

What happens if the borrower defaults?

The CLN pays coupons as long as the borrower meets obligations. If there’s a default, investors are exposed—similar to a bondholder.

However, many CLNs include security packages, such as:

  • Charge over cash flows
  • Personal guarantees
  • Asset-backed collateral

Investors should always review the legal documentation and Term Sheet for the security waterfall and recovery options.

Are CLNs appropriate for retail investors?

Generally, no.

CLNs are intended for professional investors who can understand and evaluate credit risk. In the UAE, for example, the Securities & Commodities Authority (SCA) requires that fund promotions to professionals meet minimum wealth and experience thresholds.

At Kingsbury & Partners, we do not promote CLNs to retail investors. Instead, we work with institutional counterparties, private banks, and professional wealth managers who meet the criteria.

Are the returns too good to be true?

They’re not “too good”—they’re risk-adjusted.

A CLN offering 8–10% per annum is priced for the risk being taken. Compare that to a public market high-yield bond or a private loan fund, and you’ll see similar dynamics—just without the middle layers.

What makes CLNs attractive is the direct exposure to credit risk, without dilution through layers of managers and platform fees.

Why are CLNs gaining popularity?

Because the public markets no longer deliver. Professional investors are:

  • Tired of low-yield, high-volatility portfolios
  • Seeking alternatives to over-diversified mutual funds
  • Looking for direct, uncorrelated exposure to credit markets

CLNs provide that access—in a bankable, transparent, and auditable way.

They’ve become a preferred vehicle for investors who understand that risk, when priced appropriately, can be a source of consistent income.

How are CLNs typically structured?

Most CLNs are structured through securitisation vehicles, administered by regulated (CSSF) counterparties, in Luxembourg or similar jurisdictions (Cayman, Jersey, Guernsey, Singapore, Hong Kong). The issuer creates a note programme that is cleared through Euroclear, Clearstream, or Bloomberg and includes:

  • A defined reference asset (loan, borrower, receivables pool)
  • A fixed or floating coupon
  • A maturity date and redemption structure
  • A security package, if applicable
  • Institutional-grade documentation including IM, Term Sheet, and legal opinions

This structure allows for transparency, efficient settlement, and alignment with institutional investor expectations.

What is the difference between a CLN and a loan note?

The term “loan note” is often used interchangeably—but they’re not the same.

  • Loan notes are typically bilateral, illiquid, and often used in offshore IFA markets with poor governance, sold for the (huge) hidden commissions the structure disguises.
  • Credit Linked Notes are structured, tradeable, issued via recognised custodians, and built for professional markets.

CLNs are semi-securitisations—engineered to provide transparency on underlying collateral as well as allowing investors exposure to niche credit strategies, with enhanced risk-adjusted returns, from issuers releasing capital from illiquid assets.

How do I evaluate the credit risk in a CLN?

Evaluating credit risk in a CLN involves understanding:

  • The borrower or underlying loan book (e.g. sector, jurisdiction, performance history)
  • The collateral or security package
  • The seniority of the CLN (first lien, mezzanine, etc.)
  • The cashflow structure and repayment source
  • The experience and track record of the originator or asset manager

At Kingsbury & Partners, every CLN undergoes a Product & Risk Committee (PRC) review to assess all of the above, and we provide full access to due diligence materials for professional investors.

Why do issuers use Credit Linked Notes (CLNs)?

CLNs allow issuers—typically non-bank lenders, asset managers, or corporates—to access capital markets without giving up equity or taking on restrictive bank loans.

They use CLNs to:

  • Release capital tied up in existing loan books or receivables
  • Fund new origination pipelines with flexible, non-dilutive capital
  • Achieve better cost of capital than traditional financing
  • Broaden their investor base beyond private syndication
  • Create scalable, repeatable structures for future issuances

Because CLNs are structured, transferable, and custodially settled (e.g. via Euroclear or Clearstream), they offer issuers a capital-efficient way to monetise credit exposure, often backed by real assets, while maintaining operational control.

In short, CLNs turn illiquid credit strategies into investable securities—which is why they’re increasingly popular among specialist lenders and alternative credit managers. At the same time, investors gain access and exposure to these opportunities via an institutional-grade structure.

What We Do at Kingsbury & Partners

At Kingsbury & Partners, we specialise in structuring and distributing private credit investments through Credit Linked Notes.

We work with both sides of the market:

  • Businesses and non-bank lenders seeking flexible, non-dilutive capital
  • Professional and institutional investors looking for high-quality, risk-adjusted returns

Every CLN we issue is built around a simple principle: we price risk, not upside. That means looking beyond headline yields to understand credit quality, security, cashflow structure, and real-world viability.

Each transaction undergoes a thorough review by our independent Product & Risk Committee (P&RC). This includes:

  • Independent review of the borrower or underlying asset pool
  • Analysis of the security package and capital structure
  • Assessment of repayment mechanics and exit planning
  • Ensuring investor suitability and regulatory alignment

We only move forward with structures we’d be willing to invest in ourselves—and we publish our process to ensure transparency at every stage.

In short: we bring rigour to a market that desperately needs it.

Conclusion

CLNs are not exotic. They’re a tool to access private credit and price risk transparently.

Yes, they carry risk. That’s the point. Professional investors take that risk in exchange for defined, enhanced returns. The structure, not the sales process, determines quality.

At Kingsbury & Partners, we focus on the fundamentals: structuring credit investments properly, reviewing every deal through our Product & Risk Committee, and ensuring suitability for institutional portfolios.

Ignore the noise. Focus on the structure. Price the risk.

If you want to see how we do it, get in touch.