A credit linked note (CLN) in which the underlying is a portfolio or basket subject to credit risk. In other words, the price or coupon of the note is linked to credit events of reference entities (obligations). The typical form of basket credit linked note (basket CLN) is the kth-to-default basket CLN. The basket CLN holder (the protection seller) pays the notional principal to the basket CLN issuer (the protection buyer) at the effective date of the contract and receives a series of coupon payments until either the kth default or maturity date, whichever occurs or is reached first. If the kth default occurs earlier, the basket CLN holder receives the recovered value of the reference entity/ obligation from the basket CLN issuer. Otherwise, the basket CLN holder redeems the notional principal on contract maturity.

The coupon rate is determined taking into consideration the issuer default risk (which is factored in to figure out the note price).