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.

Investopedia explains '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%.



comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center