It stands for tranche outstanding notional amount; with respect to a tranche, it is the original tranche size reduced by the credit losses (to the reference portfolio) that have been absorbed by the tranche. Over time, and as credit losses arise, the outstanding notional amount is reduced further. A fixed spread (premium) is paid to the protection seller on the declining tranche notional on a regular basis (e.g., quarterly).

On first regular payment date:

Outstanding notional amount = total notional amount – credit losses

On other regular payment dates:

Outstanding notional amount = earlier outstanding notional amount – credit losses