PPT Slide

A bank lends 10mm to a corporate client at L + 65bps. The bank also

buys 10mm default protection on the corporate client for 50bps.

Objective achieved

• maintain relationship

• reduce credit risk on a new loan

Corporate

Borrower

Bank

Financial

House

Interest and

Principal

Default Swap

Premium

If Credit Event:

par amount

If Credit Event:

obligation (loan)

Default Swap Settlement following Credit Event of Corporate Borrower