A type of first loss credit default swaps (FLCDS) or tranche loss credit default swaps (TLCDS) in which the reference asset pool is a set of credits (credit names), typically investment grade entities, with each credit having identical notional amounts and identical recovery rates. The credit pool is sliced into tranches, each with its own notional, reflecting varying levels of loss severity. If a credit event occurs in relation to the reference credit pool, the most subordinate/ least senior tranche (i.e., that with the lowest rank) will bear the first loss of the pool. Other tranches can stand specific degrees of loss and a given tranche will take loss only when all its subordinate tranches have incurred full losses.
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