A Loan Credit Default Swap (LCDS) is a derivative contract where one party (the protection buyer) pays the premium to another party (the protection seller), and in exchange, the latter agrees to reimburse the first party for any losses it incurs due to defaults on a reference loan. A LCDS protects against the risk of borrower default and is traded over-the-counter as a bilateral contract.A loan credit default swap (LCDS) is an over-the-counter (OTC) derivative contract, which allows one counterparty to exchange the credit risk on a reference loan to another in return for premium payments. LCDS are used by market participants as a tool to transfer credit exposures between counterparties. They allow investors to hedge their exposure to the credit risk of loans and issuers, while also allowing investors with opposite views on the direction of the market to take positions against each other.A loan credit default swap (LCDS) allows one counterparty to exchange the credit risk on a reference loan to another in return for premium payments. LCDS are similar to CDS except that they relate to natural persons, such as consumers and small businesses, rather than corporations. The reference loan is the borrower's obligation on which the credit risk is transferred through an LCDS contract.
