Floating Rate Bank Loans

Floating rate bank loans adjust their coupon rates when prevailing interest rates change.

According to Ridgeworth Investments, floating rate bank loans have the following features:

> Protection against rising interest rates: Generally, fixed income securities will decrease in value if interest rates rise and vise versa, but since floating bank rate coupons reset as interest rates change, these generally hold their value when interest rates change. These are typically tied to a base rate such as the short-term benchmark London Interbank Offered Rate or LIBOR.

> Debt Obligation Seniority: "These bank loans typically hold higher position in the issuers' capital structure, hence it takes precedence over other debt claims if the borrower is unable to meet its obligations."

> high yield, high risk: Issued by investment or commercial banks to provide capital to companies with below investment-grade rating. These are short term, higher risk, high yield investments.

Source:

https://www.ridgeworth.com/includes/files/assets/files/1377803872_BankLoanWhitePaper_final.pdf