Super Floater


DEFINITION of 'Super Floater'

A floating-rate collateralized mortgage obligation (CMO) tranche whose coupon rate is determined by a formula based on an interest-rate index such as LIBOR. The coupon rate is leveraged i.e. it moves more than one basis point for each basis point change in the index.

A super floater can also refer to a leveraged floating rate note whose coupon rate changes are magnified (ratio greater than one) when the reference interest rate or index changes. Since their coupon rate moves in the same direction as interest rates, super floaters are suitable investments in a rising interest-rate environment.

BREAKING DOWN 'Super Floater'

As an example, a super floater coupon may be determined by the following formula: 2 x (one-year US$ LIBOR) - 4%. So if the one-year LIBOR is 3%, the coupon rate would be 2 x 3% - 4% = 2%. To prevent the coupon rate getting negative, a floor rate on the coupon is usually specified.

  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  3. Floating-Rate Note - FRN

    A note with a variable interest rate. The interest rate is usually ...
  4. Leveraged Floater

    A security, generally a bond, which has a leverage factor of ...
  5. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  6. Tranches

    A piece, portion or slice of a deal or structured financing. ...
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