Credit-linked note
A credit-linked note is a securitised credit derivative usually (but not necessarily) issued by an espievie off a repackaging programme. Rather like that curiosity of Cayman fauna, the CLN was once rather common place, but nowadays is rather exotic.
But it is an excuse to wheel out the South African CLN story, from the good old days.
The South African credit-linked note and the misunderstood sw-æp
It was two decades ago, a mild Friday evening in the infancy of the credit derivatives market. It was all to do with a secured note, credit-linked to the republic of South Africa. I had drafted it — elegantly, if I do say so myself — and faxed if off, as one did in those days, to our client, a giant investment bank, and the prospective purchaser. The week’s work done, I was putting my blazer on and groping for my brolly when the phone rang.
I turned on my heels and regarded it resentfully. Should I answer?
Valour got the better part of discretion, and I did.
It turned out to be a partner from that famous derivatives firm[1] Stephenson Harwood. He announced himself as the prospective client’s solicitor and told me he had some comments on the swap.
Only he pronounced it “sw-æp”, to rhyme with “crap”, and not “sw-ŏp”, to rhyme with chop — something that, after Noel Edmonds, you would think no self-respecting British child, let alone one who had matured into a derivatives whizz, would do.
In any case, there went my Friday evening. In due course this chap faxed in his mark-up of the, er, sw-æp. He had rather gone to town on it, in a manner indicating only a passing acquaintance with the derivatives market, but great expertise in the complications that arise when one transports goods by sea.
My supervising partner in those days was an excitable fellow[2]. I confess it was with salacious glee that I trotted around and dropped the comments — which were as compendious as they were ill-informed — on his desk, the way an obstreperous child might drop a lit match onto a paper envelope of doggie-doo before leaving it on a neighbour’s doorstep, ringing the doorbell and departing.[3]
It had the anticipated effect. Whilst the young JC was patiently explaining this unexpected setback to our client — a callow but quick young fellow from Dublin, in his first year out from Trinity College — the supervisor stormed into the room, his face a rich shade of puce.
“I have never been so outraged”, said he, “and I have covered his ridiculous mark-up with unspeakable obscenities! Filthy! Words that start with “c” and “p”!”
There was the most exquisite pause before an Irish voice on the speakerphone interjected:
References
- ↑ Not famous. It was and, as far as I know, still is, a shipping and marine insurance specialist.
- ↑ Highly excitable. To keep a lid on his blood pressure, he retired shortly thereafter and now runs a newsagent in Gillingham.
- ↑ This is a variety of “knock-down ginger” called, we are informed, “shite alight”.