A note which allows the holder to receive a guaranteed minimum rate plus extra coupon payments up to a specific level (cap) if the issuer would manage to achieve a preset level of income or profits. This note, thus, entitles the holder additional benefits beyond its fixed rate of interest. In that sense, participating notes are a mixture of a standard floating rate note (floater) and a capped floating rate note (capped floater). The floating rate is a subject to a fixed maximum rate that in a high rate environment will restrict movement of the effective yield beyond that limit.

Participating notes are also dubbed “participating capped floating rate note” (participating capped floaters).