Loan Credit Default Swap (LCDS)

Filed Under » , , , ,
Dictionary Says

Definition of 'Loan Credit Default Swap (LCDS)'

A type of credit derivative in which the credit exposure of an underlying loan is swapped between two parties. A loan credit default swap's structure is the same as a regular credit default swap, except that the underlying reference entity is limited strictly to syndicated secured loans, rather than any loan or bond.

Also know as a "loan-only credit default swap".
Investopedia Says

Investopedia explains 'Loan Credit Default Swap (LCDS)'

As with regular CDS, these derivatives can be used to hedge against credit exposure the buyer may have or to obtain credit exposure for the seller. These products can also be used to make bets on the credit quality of an underlying entity to which parties have not had previous exposure. It is important to understand why LCDS are broken out separately from CDS. The fact that the reference loans are secured leads to higher recovery values if those loans default. As a result, LCDS generally trade at tighter spreads.

Related Definitions

  •

    Credit Default Swap (CDS)

    A swap designed to transfer the credit exposure of fixed income products between parties. Credit default swap, also referred to as a credit derivative contract where the purchaser of the ...
    Read More »

  • Credit Default Contract

    Security with a risk level and pricing based on the risk of credit default by one or more underlying security issuers. Credit default contracts include credit default swaps (CDSs), ...
    Read More »

  • Default

    1. The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are ...
    Read More »

    • Fixed-Income Security

      An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change ...
      Read More »

    • North American Loan Credit Default Swap Index - LCDX

      A specialized index of loan-only credit default swaps (CDS) covering 100 individual companies that have unsecured debt trading in the broad secondary markets. The LCDX is traded over the ...
      Read More »

    • Swap

      Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, ...
      Read More »

    • Contingent Credit Default Swap (CCDS)

      A variation on the credit default swap (CDS). In a simple CDS, payment under the swap is triggered by a credit event, such as non-payment of interest. In a contingent credit default swap ...
      Read More »

    • Risk

      The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk ...
      Read More »

    • Recession

      A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The ...
      Read More »

    • Mutualization Of Risk

      Dividing up the costs associated with risks and financial losses among several investors, businesses, organizations or people. Mutualizing risk lowers the overall potential for ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions