Jurisdiction(s):
United Kingdom

Key definition

Credit default swap definition

What does Credit default swap mean? A credit default swap (CDS) is a bilateral derivatives contract that transfers the credit risk of a specified borrower (the reference entity) or debt (the reference obligation). The protection buyer pays periodic premiums; if a defined credit event occurs—typically failure to pay, bankruptcy/insolvency or, depending on elections, restructuring—the protection seller must make a payout. In practice, settlement is either: cash (paying the difference between par/face value and the post‑event market value), or physical (the buyer delivers eligible debt and receives par). CDS are commonly used to hedge exposure to corporate bonds or loans (and can reference sovereign or other...

Credit Default Swaps: Practical Guide to Structure, Documentation, Clearing and Settlement, Key Variants (Sovereign, ABS, Basket, LCDS, CDOs) and Evolving Regulatory and Market Developments

Published by a LexisNexis Banking & Finance expert

Practice notes

$imgtext$

What does this Practice Note cover?

This Practice Note outlines the predominant and widely used form of credit Derivative, the Credit default swap (CDS). It also describes the reasons participants use CDS, the manner in which a CDS is documented, and the way CDS are cleared. In addition, it identifies a number of particular CDS structures, including CDS linked to asset-backed securities (CDS on ABS), basket CDS (covering both portfolio CDS and Nth to default CDS), loan-only CDS (LCDS) and collateralised debt obligations (CDOs).

What is a CDS transaction?

The most prevalent credit derivative is a credit default swap (CDS). It is an agreement between two parties that hinges on the credit quality of a third party, called the reference entity. That reference entity might be a corporate, a sovereign, a municipality or a comparable organisation, and does not have to be a party to, or even cognisant of, the deal. Indeed, it is improbable the reference entity will be aware of the arrangement. The protection buyer is the party acquiring credit protection on the reference entity, and the protection seller is the party providing that credit protection. The exposure to the third party experiencing a credit event is therefore...

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

Web page updated on 21/05/2026

Popular documents

Using the Judicial College Guidelines to assess general damages in personal injury claims

When evaluating a general damages claim, the practitioner ought initially to refer to the Judicial College Guidelines (JCG)...

Tomlin orders in England and Wales: CPR guidance on drafting, confidentiality, approval, variation, enforcement, limitation, CCA issues, court-specific requirements, sample wording and precedents

This Practice Note This Practice Note reviews mechanisms used in settling litigation. A Tomlin order consists of a consent order paired with a schedule. It operates to stay proceedings on terms that have been agreed. The provisions contained in the schedule may remain confidential. This Practice Note describes the scope of confidentiality attaching to the schedule and sets out how it differs from a standard consent order. Sample wording for a Tomlin order is included, alongside links to precedents, as well as guidance on court approval. It also addresses varying, setting aside and enforcing a Tomlin order, including the considerations the court will take into account when handling applications for each. Further guidance is provided on interpreting and applying the relevant provisions of the CPR; however, some courts and divisions impose very specific requirements for both drafting and approval, and for approaching the schedule and confidentiality issues. Accordingly, you must consider the particular rules and court guide provisions in the forum where your claim is proceeding when drawing up the Tomlin order...

Precedent: Deed of Surrender of Lease with Optional Premium, Settlement and Release, Landlord, Mortgagee and Guarantor Consents, Reimbursement and HM Land Registry Provisions (England and Wales)

Date [ date ] Parties [ name of Landlord ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Landlord) [ name of Tenant ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Tenant) [ [ name of Guarantor ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Guarantor) ] [ [ name of Mortgagee ] [ of OR incorporated in England and Wales (company registration number [ number ]) with its registered office at ] [ address ] (Mortgagee) ] Definitions Within this Deed, the terms below shall be interpreted as follows: [ Annual Rent • the annual sum reserved under the Lease; ] [ Insurance Rent • the Tenant’s share of the Landlord’s costs of insuring the Property (as set out in the Lease); ] Lease • the lease of the Property dated [ date ], entered into between (1) [ the Landlord OR [ name ...

Precedent Statutory Declaration: Standard Wording under the Statutory Declarations Act 1835

I, [ name ], of [ address ], solemnly and sincerely state that: [ Matters to be verified, set out in numbered paragraphs ] I make this solemn statement in good conscience, believing it to be true, and pursuant to the provisions of the Statutory Declarations Act 1835. DECLARED at [ details ] this [ day ] day of [ month and year ] Before me ................................................................................ [ signature of the person before whom the declaration is made ] A [ commissioner for oaths OR [ solicitor OR [ insert other qualification ] ] authorised to administer oaths ]...