The fixed leg of a CDO tranche is the present value of the amount of principal (capital) that the protection seller (tranche holder) agrees to pay should a default occurs. It reflects the loss given default (LGD) that the tranche holder faces (at the time of default). The fixed leg pays a pre-agreed amount (upfront fee and / or running coupon) on the notional that remains in the tranche after accounting for payouts on the other leg (i.e., the protection leg).
The other leg is called a default leg or a floating leg.
It is also known as a premium leg.
