Equity-Linked Note (ELN)

A security that combines the characteristics of a zero- or low-coupon bond or note with a return component based on the performance of a single equity security, a basket of equity securities, or an equity index. In the latter case, the security is typically called an equity index-linked note. Equity-linked notes come in a variety of styles. The minimum return may be zero with all of what would normally be an interest payment going to pay for upside equity participation. Alternatively, a low interest rate may be combined with a lower rate of equity participation. The participation rate in the underlying equity instrument may be more or less than dollar for dollar over any specific range of prices. The participation may be open ended (the holder of the note participates proportionately in the upside of the underlying security or index, no matter how high it goes), or the equity return component may be capped. Other things equal, a capped return is associated with a higher rate of participation up to the cap price. Various versions of this instrument are known as Capital Guarantee Note, Equity-Linked Debt Placement, Equity-Linked Certificate of Deposit (ELCD or ECD), Equity Participation Notes (EPNs), Indexed Notes, Index-Linked Bonds or Notes, Equity Index Participation Note, Equity Index-Linked Note, Equity Participation-Indexed Certificates (EPICs), Index Principal Return Note, All-Ordinaries Share Price Riskless Index Notes (ASPRINs), Geared Equity Capital Units (GECUs), Performance Index Paper (PIP), Customized Upside Basket Security (CUBS), Structured Upside Participating Equity Receipt (SUPER), Portfolio Income Note (PIN), Market Index Deposits (MIDs), Market-Indexed NotE (MINE), Market Index Target-Term Security (MITTS), Stock Index Growth Notes (SIGNs), Stock Index Insured Account, Stock Index Return Security (SIRS), Stock Performance Exchange-Linked Bonds (SPELBonds), Guaranteed Return Index Participation (GRIP), Guaranteed Return on Investment (GROI) Certificate, Index Growth-Linked Units (IGLUs), Index Participation Certificate, Protected Equity Note (PEN), Protected Equity Participation (PEP), Protected Index Participation (PIP), Safe Return Certificate, or as a variety of “money back” certificates. While the names may provide a clue to the structures, each issuer seems to have at least one proprietary name for some version of these instruments. Investors must look at the structure and pricing of the units offered and compare them with more familiar names and structures. Compare with Commodity Index Note. See Securitized Options, Standard & Poor's Index Notes (SPINs), Structured Note. See also Guaranteed Index Unit, Deposit Note, Market-Linked CD, Synthetic Convertible Debt (2), Money Back Certificates.





© Copyright 1996, 1999 Gary L.Gastineau. First Edition.
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