What Is a Long Inverse Floating Exempt Receipt (LIFER)?
A Long Inverse Floating Debt Receipt (LIFER) is a floating rate debt security traded among qualified institutional buyers (QIBs) and originated by German financial firm Deutsche Bank. A long inverse floating debt receipt pays a yield equal to a fixed base interest rate minus the floating rate of a benchmark (such as LIBOR+). As such, the interest rate paid moves inversely to the direction of the variable rate itself.
Understanding Long Inverse Floating Exempt Receipts (LIFER)
Long Inverse Floating Debt Receipts (LIFER) fall under municipal structured finance. This means that the underlying cash flows for the receipts are provided by municipal authorities, such as airports, roads and schools. These securities are generally exempt from registration with the SEC under a provision in the Securities Act of 1933 known as Rule 144A. Bearer-bond versions (that offer no coupon) are also allowed for trade in the U.S. under Regulation S.
LIFERs are considered more volatile than vanilla floating-rate notes, as the fixed rate of the contract will be set higher than the typical ranges of the (variable) benchmark, and often by a larger margin than the benchmark is from zero. Their complexity and increased risks are why they are only traded among qualified institutional buyers (QIBs) on the assumption of their being a sophisticated investor who understands the nuances and the risks of the product.