A funded credit derivative in the form of a debt security, under which the investor in the note will receive the face value of the note at maturity unless there is a default by an underlying third party referenced by the note, in which event the investor will take delivery of debt securities of the underlying reference entity or receive a reduced amount. In exchange for taking the credit risk on the underlying reference entity, the investor in the note receives coupon payments which are usually higher than the coupon payments that would be payable on a corporate bond issued by the underlying company.

For more detail on credit-linked notes, see Practice note, Credit derivatives: Funded credit derivatives.