Definition of Floating Rate Note (FRN)

variable rate bonds with an interest rate that is periodically reset, usually every three to six months, and that carry a fixed spread, usually over the six-month London Interbank Offered Rate (LIBOR). Floating rate notes, also called floaters, have been an important source of medium-term international credit for commercial banks active in Euromarket lending. Competition in the Euromarket has led to a wide variety of notes: a perpetual floating rate note is a variable rate note with no stated maturity; a capped floating rate note sets an upper limit on the borrower's interest rate; and a mini-max FRN carries a rate that can fluctuate only within a preset range. Floating rate notes are usually subordinated to the claims of the depositors, and usually count toward a bank's capital base.