English to Swedish Bus/Financial Finance (general) financial products

Credit Tranche products usually benefit from a protection cushion before starting to lose the investment but have a leveraged exposure so the investor will lose more per credit event after the protection period compared to a linear product. For example in a basket with 100 companies with zero recovery, a linear product would have an exposure of 1% per company. If you however have a 10%-20% tranche this means that the product is protected against the first 10% loss (the first 10 credit events) but the investor will lose all invested capital in case of more than a 20% loss (20 credit events) which means the loss is 10% of the investment per credit event.

In the above example, the product has a leveraged credit portfolio of 10 times since the loss is 10 times more per credit event. This is referred to as the Reference Credit Portfolio, with a size being the multiple of the investment amount. For example, a 10 times leveraged credit tranche product with an initial investment of 100,000 SEK would have a reference credit portfolio of 1,000,000 SEK.

Potentially exposed to leveraged losses: All the investment of the Credit Tranche product is at risk on a portion, a “Tranche” of the leveraged reference portfolio.