CREDIT LINKED NOTES IN THE MECHANISM OF RAISING CAPITAL IN INTERNATIONAL FINANCIAL MARKETS
Keywords:
credit linked notes, credit derivative, default, pool of assets, trust company, credit protection, debt financial instruments.Abstract
The paper defines the economic nature and mechanism of functioning of CLN in the context of an efficient capital raising and credit risk redistributing. Proved that the appearance of credit linked notes caused by process of securitization of loans. The peculiarities of raising capital and minimizing credit risk through the mechanism of functioning of the CLN are investigated in the article. CLN’s investment component are characterized. CLN’s advantages over other instruments of the capital raising in international financial markets are defined.
We proved that the functional characteristics of credit notes as a tool for raising capital in international financial markets are: 1) marketing tool that enables companies to manage their debt; 2) issue conditions are determined immediately prior to placement; 3) fixed interest rate, which makes it possible to reduce the cost of borrowed funds; 4) market pricing; 5) short terms of preparation of the project of issue; 6) creation of preconditions for entering the international capital markets (Eurobonds, IPO).
CLN issuer enters the public debt market, so in the future, it rates on loans will have a price point for the formation of the pricing fair. Companies have the opportunity to create a credit history in the international capital markets and increase brand recognition among foreign investors. Efficient capital raising and minimize credit risk through the use of the mechanism of functioning of the credit notes and the effective implementation of the investment potential of structured derivative financial instrument is possible while stable interest rates and narrow credit spreads. Credit notes valuation problem has not been solved to date, which, in our opinion, of course justified by the stochastic nature of a structured derivative.
We consider absolutely objective process of the scientific debate on the adequacy of uses of credit notes in the extreme conditions and developed capital markets that actualizes further research in this direction.
