Loan Credit Default Swap (LCDS),
Definition of Loan Credit Default Swap (LCDS):
A loan credit default swap (LCDS) is a type of credit derivative in which the credit exposure of an underlying loan is exchanged between two parties. A loan credit default swap's structure is the same as a regular credit default swap (CDS), except that the underlying reference obligation is limited strictly to syndicated secured loans, rather than any type of corporate debt.
A derivative where credit exposure to a loan is traded or swapped between two entities. These can be used for the purpose of hedging against credit exposure that a buyer can have or to obtain credit exposure for a seller. Sometimes LCDSs are used for making bets on the credit quality of an underlying entity.
A financial contract whereby a buyer of corporate or sovereign debt in the form of bonds attempts to eliminate possible loss arising from default by the issuer of the bonds. This is achieved by the issuer of the bonds insuring the buyer’s potential losses as part of the agreement.
Loan credit default swaps can also be referred to as “loan-only credit default swaps.”.
How to use Loan Credit Default Swap (LCDS) in a sentence?
- Fears of so-called counterparty risk arising from credit default swaps were central to the investment banks unravelling in March.
- The difference is that the reference obligation underlying the contract can only be syndicated secured loans.
- A loan credit default swap has the same general structure as a regular credit default swap.
- A loan credit default swap (LCDS) is allows one counterparty to exchange the credit risk on a reference loan to another in return for premium payments.
Meaning of Loan Credit Default Swap (LCDS) & Loan Credit Default Swap (LCDS) Definition