Everybody gets a trophy! There are no winners or losers! Just participation ribbons and pizza after the game! Why shouldn't loans get into the act? Even though your loan went 0-4 in the big game and made the crucial error at first base, it gets a loan participation note.
Actually, an LPN represents a kind of fixed-income security. It lets an investor buy into a packet of loans.
For the investor, an LPN operates in a similar fashion to a normal bond. You pay a certain amount to acquire the note. In return, you receive regular payments covering interest and principal.
However, the construction is different than a bond. A bond is typically purchased from the entity using the money. McDonald's issues a set of bonds. You buy one. You've essentially loaned money to McDonald's. It's a two-way relationship.
The LPN involves a third party. In this case, a bank has made a set of loans. They package those loans together and then sell off partial ownership of the debts. You are participating in the loan...hence the name "Loan Participation Note."