What is a Credit Linked Note (CLN)?

A Credit Linked Note (CLN) is a versatile financial instrument issued by companies to raise capital. Operating similarly to a bond, the issuer specifies the underlying “credit risk” to the investor in exchange for a fixed or floating interest payment, also known as a coupon.

Unlike traditional bonds, CLNs offer greater flexibility, allowing issuers and investors to customise their exposure levels. This adaptability enables the issuer to incorporate multiple forms of collateral into the investment structure. By combining traditional corporate credit risk with tangible assets, the CLN assigns the collateral rights to the investment vehicle, offering enhanced security to investors.

For prospective investors, it is crucial to thoroughly evaluate the underlying security and understand the outcomes in case of non-payment or default by the issuer.

 

CLN as a Strategic Funding Solution

Companies seeking to raise finance for new initiatives or development projects often face challenges with conventional funding channels. Imagine a business requiring £10 million for a project but finding traditional options less than ideal:

  • Bank Loans: These may come with high costs or impose a significant strain on the company’s credit profile.
  • Bond Issuance: The relatively small amount may not justify the complexity or expense of issuing bonds.
  • Equity Financing: Increasing capital through shares could lead to unwanted shareholder dilution.

In such cases, a Credit-Linked Note offers an innovative alternative. By issuing a CLN, the company can attract private or qualified investors, including family offices, high-net-worth individuals, holding companies, and private funds. This route provides a regulated, transparent structure that benefits both the issuer and investors.

For investors, a CLN delivers security through collateral-backed arrangements managed by a regulated entity adhering to financial supervisory standards. For the issuing company, it represents a flexible, efficient, and cost-effective way to secure funding.

 

Key Features and Benefits of Credit-Linked Notes

Credit-Linked Notes are gaining popularity due to their unique benefits, which make them an attractive option for both companies and investors:

  1. Securitisation of Loans

CLNs enable the securitisation of loans by backing them with tangible assets. This provides additional security and reassurance to investors.

  1. Access to Multiple Investors

Rather than relying on a single source, CLNs allow issuers to accept debt capital from a diversified pool of qualified investors.

  1. Attractive Returns

Investors benefit from returns that are independent of traditional bond yields, offering a compelling alternative to standard financial markets.

  1. Bankable Instrument

As a regulated financial product, a CLN can be purchased through any credit institution and held as part of an investor’s securities portfolio.

  1. Transparent Terms

The transaction’s key terms—including payment structures, coupon frequency, and maturity dates—are clearly documented in an official Term Sheet. This transparency ensures both parties’ expectations are well managed.

  1. Early Redemption Options

CLNs may offer early redemption options for investors before the maturity date, subject to the agreement with the target company.

  1. Full Capital Repayment

At the product’s maturity, investors are assured of the full repayment of their initial capital.

 

Why Companies Choose Credit-Linked Notes

Issuing a CLN provides businesses with a financing solution that balances flexibility and security. By engaging private investors through a regulated structure, companies can:

  • Avoid the complexities and costs of traditional fundraising channels.
  • Retain control over their operations without diluting shareholder equity.
  • Build trust with investors through transparency and clear documentation.

In today’s fast-evolving financial landscape, CLNs represent a powerful tool for businesses to secure funding while offering investors competitive returns. Whether you are an issuer seeking efficient capital-raising options or an investor exploring opportunities beyond conventional markets, Credit-Linked Notes could be the ideal solution.

 

Conclusion

Credit-Linked Notes (CLNs) offer a structured, transparent, and secure route for companies to raise capital and for investors to access differentiated returns with tangible asset backing. By bridging the gap between bespoke private lending and institutional-grade security, CLNs have become an increasingly attractive tool in the modern capital markets toolkit. Whether you are an issuer seeking more control and flexibility, or an investor looking for clarity and downside protection, CLNs offer a practical, regulated solution worth serious consideration.

For companies and investors alike, the strength of a CLN lies in how it’s structured, governed, and placed. That’s where experienced partners make all the difference.