A floater (FRN) in which a higher coupon is paid should a particular reference rate is within a specific range (corridor) composed of a lower and an upper boundary. The coupon payments are calculated based on the number of days during the preceding coupon period in which a reference rate was stuck to a pre-set corridor . If the reference rate remains within the corridor, the investor receives a much higher coupon than that of a comparable standard floater. However, if that rate slides outside the corridor, no interest accrues on the note. Corridor floaters provide an enhanced yield to investors who expect that rates will remain within a particular corridor. Maturities of corridor floaters are typically of 1 to 2 years.
A corridor floater is also known as a range floater or an accrual note.
Comments