Loan Credit Default Swap (LCDS)

AAA

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 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 TERMS
  1. Mutualization Of Risk

    Dividing up the costs associated with risks and financial losses ...
  2. Contingent Credit Default Swap ...

    A variation on the credit default swap (CDS). In a simple CDS, ...
  3. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Recession

    A significant decline in activity across the economy, lasting ...
  5. Credit Default Swap - CDS

    A swap designed to transfer the credit exposure of fixed income ...
  6. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic ...
Related Articles
  1. Options & Futures

    Careers In The Derivatives Market

    The growing interest in and complexity of these securities means opportunities for job seekers.
  2. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  3. Options & Futures

    Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.
  4. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  5. Options & Futures

    Volatility - The Birth Of A New Asset Class

    Learn more about the trading possibilities with the VIX.
  6. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  7. Mutual Funds & ETFs

    Can you invest in hedge funds?

    Read about what it takes to invest in a hedge fund, and learn how some investors find ways to indirectly capture a hedge fund's returns.
  8. Options & Futures

    Is short selling ethical?

    Understand the concept and practice of short selling, and examine the ethical questions that some investors raise in regard to this practice.
  9. Options & Futures

    How is it possible to trade on a stock you don't own, as is done in short selling?

    Understand how the process of short selling allows a person to sell a stock he or she doesn't technically own by borrowing on margin from a broker.
  10. Options & Futures

    What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including the uptick rule.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center