Creditworthiness of the Issuer: PPNs are issued by financial institutions, typically banks or other entities. The degree of principal protection provided by the note depends on the creditworthiness and financial strength of the issuer. If the issuer experiences financial difficulties or defaults on its obligations, it may be unable to fulfill its guarantee of returning the principal investment. Hence, the creditworthiness and financial stability of the issuer are critical factors to consider when evaluating issuer risk associated with PPNs.
Counterparty Risk: PPNs involve a contractual relationship between the investor and the issuer. This creates counterparty risk, which refers to the risk that the issuer may fail to fulfill its contractual obligations. While PPNs are structured to provide principal protection, there is always a risk that the issuer may default, leading to potential losses for the investor. This risk becomes more relevant in the case of PPNs issued by institutions with lower credit ratings.
To mitigate issu
