A credit swap (credit default swap, CDS) in which the risk is not transferred to the counterparty (protection seller) unless and until all different classes (A, B, C, and D) have been fully exhausted and wiped out. The originator enters into different arrangements at different levels with counterparties: the swap with the super senior swap seller is not normally funded or collateralized (therefore, it is an unfunded swap), while the swap with a special purpose vehicle (SPV) is fully funded by the buyer (the investor) (hence, it is a fully funded swap).
For a credit portfolio, the first-loss risk is first absorbed by the funded swap with the SPV (beyond that level, various classes will absorb respective parts of the is in a junior to senior order). Losses beyond the ability of existing classes to absorb will be transferred to the super-senior swap counterparty. Subordinate classes provide credit enhancement to senior classes, amongst which the most senior or highest class in terms of credit protection is the super senior.
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