Deleveraged Floater

DEFINITION of 'Deleveraged Floater'

A fixed-income instrument with a floating coupon rate that is a product of the reference interest rate, or index, and a leverage factor of less than one, plus a fixed margin. The deleveraged floater gets its name from the fact that its coupon rate is a fraction of the reference interest rate. If the leverage factor is greater than one, the instrument would be a leveraged floater. The reference rate used for such floaters is usually a widely referenced benchmark such as LIBOR, treasury rate or the federal funds rate.

BREAKING DOWN 'Deleveraged Floater'

The coupon rate for a deleveraged floater is calculated as follows:


(Reference Interest Rate x Leverage Factor) + Fixed Margin.


As an example, consider a deleveraged floater with quarterly coupon payments based on the federal funds rate and a leverage factor of 0.6, with a margin of 1%. At the time of the first coupon payment, if the federal funds rate is 4%, the coupon rate on this deleveraged floater would be 3.4%. If the federal funds rate is 3% at the time of the next coupon reset, the coupon rate would now be 2.8%.

RELATED TERMS
  1. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  2. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  4. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  5. Inverse Floater

    A bond or other type of debt whose coupon rate has an inverse ...
  6. Treasury Note

    A marketable U.S. government debt security with a fixed interest ...
Related Articles
  1. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  2. Insurance

    Consider Prime Rate Funds For More Income

    These funds may give you the reliable stream of income you need when you're retired.
  3. Forex Education

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  4. Mutual Funds & ETFs

    Floating-Rate Mutual Funds: Rewards And Risks

    In an economy with low interest rates, investors need to get creative in order to reap high returns.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing

    How Rising Interest Rates Affect Junk Bonds

    We examine the impact of rising interest rates on higher-yielding bonds.
  7. Mutual Funds & ETFs

    The 4 Best Fidelity Funds for Income Seekers in 2016

    Discover the four best fixed-income mutual funds administered and managed by Fidelity Investments suitable for income-seeking investors.
  8. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  9. Mutual Funds & ETFs

    The 4 Best Vanguard Funds for Income Seekers in 2016

    Discover four mutual funds administered and managed by the Vanguard Group that would be suitable for income-seeking investors for 2016.
  10. Stock Analysis

    Analyzing Boeing’s Return on Equity (ROE) (BA)

    Learn about Boeing's return on equity and find out how the company's ROE compares to its own historical performance and aerospace industry peers.
RELATED FAQS
  1. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  2. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  3. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  4. Can mutual funds use leverage?

    Traditionally, mutual funds have not been considered leveraged financial products. However, a number of new products have ... Read Full Answer >>
  5. How do hedge funds use leverage?

    Hedge funds use several forms of leverage to chase large returns. They purchase securities on margin, meaning they leverage ... Read Full Answer >>
  6. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center