The market is divided into the following categories:
Investment grade credits - top quality government, corporate or bank bonds
High Yield credits - low grade, questionable credit
Distressed debt - bonds, companies in trouble
Emerging Market credits - credits which may not be so freely traded, usually very volatile, often with liquidity problems.

Credit Value Adjustment (CVA) - A plain vanilla swap now has embedded credit risk and the value of the swap needs to be adjusted accordingly by means of a CVA

Distressed Debt - distressed securities are securities of companies or governments that are either already in default, under bankruptcy protection or heading towards default. - the most common are bonds and bank debt.
Defined as fixed income with a "Yield to maturity" over 1000 basis points (10%) over treasuries (risk free)
A related category to distressed debt is "stressed debt". This is typically yielding between 600-800 bps over treasuries
When companies enter a period of financial distress, the original holders often sell the debt or equity securities of the issuer to a new set of buyers. Hedge funds are now the largest buyers of distressed debt.

CLN - Credit Linked Note
Usually no coupon
linked to another original bond and has the same characteristics
Need a coupon rate in the system though to be able to calculate the correct yield.

4 Cs of credit
Character -
Capacity - ability to repay the debt
Collateral -
Covenants -

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