Variations
Some FRNs have special features such as maximum or minimum coupons, called capped FRNs and floored FRNs. Those with both minimum and maximum coupons are called collared FRNs.
Perpetual FRNs are another form of FRNs that are also called irredeemable or unrated FRNs and are akin to a form of capital.
FRNs can also be obtained synthetically by the combination of a fixed rate bond and an interest rate swap. This combination is known as an Asset Swap.
- Perpetual Notes (PRN)
- Variable Rate Notes (VRN)
- Structured FRN
- Reverse FRN
- Capped FRN
- Floored FRN
- Collared FRN
- Step up recovery FRN (SURF)
- Range/corridor/accrual notes
- Leveraged/Deleveraged FRN
A deleveraged floating-rate note is one bearing a coupon that is the product of the index and a leverage factor, where the leverage factor is between zero and one. A deleveraged floater, which gives the investor decreased exposure to the underlying index, can be replicated by buying a pure FRN and entering into a swap to pay floating and receive fixed, on a notional amount of less than the face value of the FRN.
Deleveraged FRN = Long Pure FRN + Short (1 - Leverage factor) x Swap
A leveraged or super floater gives the investor increased exposure to an underlying index: the leverage factor is always greater than one. Leveraged floaters also require a floor, since the coupon rate can never be negative.
Leveraged FRN = Long Pure FRN + Long (Leverage factor - 1) x Swap + Long (Leverage factor) x Floor
Read more about this topic: Floating Rate Note
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